AmTech Previews Google (GOOG) Q2 Earnings

July 10, 2008 12:04 PM EDT

American Technology Research issued an analyst note this morning previewing Google's (Nasdaq: GOOG) Q2 earnings, which are expected out Thursday, July 17 after the market close. The firm reiterates its Buy rating and $750 price target on Google. AmTech calls Google "a must-own stock for large-cap growth managers." With shares of Google trading around $545 today, AmTech's price target represents potential upside of more than 35% from current levels.

The firm has a prevailing theme throughout the research report: it views Google "as having three call options: 1) Display, 2) Video and 3) Mobile." In effect, AmTech is implying that by buying shares of Google, investors will have exposure to not only Google's dominant search business, but also to a global trend towards display, video and mobile. Although each of these segments has not yet been monetized, AmTech believes the opportunities are "very large", calling Display "the most near-term opportunity" and Mobile, the most attractive. On the other hand, AmTech points out that in the near-term, growth in Google's international regions will likely be the most tangible near-term opportunity.

As Google does not issue guidance and has a difficult business model to predict, AmTech does not have any Q2 estimates for the company's earnings. "That said, checks have been encouraging and we think GOOG could post earnings upside this quarter. U.S. revenue growth did decelerate fairly materially last quarter, from 40% in Q4 to 29% in Q1. This will be a key metric to watch in the report."

AmTech believes investors should also focus on Google's operating margins and net new hires. During the second half of this year, the firm expects Google to report its first rise in margins in three years and also sees slower headcount growth. AmTech said, "We are looking for net new hires in the 850-1,000 range with a solid top-line to give confidence to our 2H margin thesis."

Google, Inc., a technology company, maintains index of Web sites and other online content for users, advertisers, Google network members, and other content providers.

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