Google Q2 Earnings Preview: Low Sentiment Sets Up For Upside, But Is the Mojo Gone?

Shares of Google (Nasdaq: GOOG) are trading lower ahead of the company's second quarter earnings report, expected after the market closes today. Shares are down marginally, about 0.87% to $487.08.

Google is expected to report EPS of $6.53 on revs of $4.99 billion. For the first quarter, GOOG posted EPS of $6.76 and revs of $6.77 billion, topping analyst estimates for EPS of $6.60 and revs of $4.95 billion. For the second quarter last year, the Mountain View, CA-based search giant reported EPS of $4.63, lower than the consensus of $4.74, and revs of $3.9 billion just eked out the consensus of $3.87 billion.

Shares of the stock have receded through the quarter, down just about 22% to close at $444.95 on June 30. The stock is currently down 21% from the close on January 4, 2010.

Data from Bloomberg says that 32 analysts have a Buy rating on the shares, 5 have a Hold, and none suggest to Sell. The analyst price target average is $655.40, with a high of $750, and a low of $560.

Analyst Ratings Through the Quarter
In April, Goldman Sachs took Google off of their Conviction Buy List, while maintaining their six-month price target of $680 and Buy rating on the shares. Goldman cited underperformance following first quarter results.

Citi had a neutral take on GOOGs Q1 results, and kept their Buy rating, believing that the shares had material valuation support.

In May, Piper Jaffray kept their Overweight rating on the shares after getting word that Google's Q210 paid clicks were tracking up Q/Q. Piper has a $700 price target on Google.

Late May saw Citi add GOOG to their Top Picks Live list, reiterating a Buy and $640 price target.

June started with Benchmark telling investors to 'buy the dip' on Google, while dipping their own price target from $700 to $600, holding their Buy rating.

Gleacher & Co. maintained their Buy rating on Google at the end of June, noting a positive YouTube patent infringement settlement and their recent turmoil still had shares standing firm.

Summary
Google has famously had trouble in China since the beginning of the year. Adding to their frustration, Chinese competitor Baidu (Nasdaq: BIDU) completed a stock split which brought their ADS shares down to 'attainable' levels...now trading at $74.94 instead of the $713.01 per share that they were going for in late-April, and the $487 where Google is currently trading. (Note: China is a country with at least 400 million users...more than the population of the U.S.) Baidu's GM recently said that they are looking to capture 79% of the Chinese market by 2011, not entirely impossible considering that their market share jumped from 58.4% to 64% from Q409 to Q110, whilst Google dropped from 35.6% to 30.9%.

Elsewhere, Google's Android OS appears to be gaining traction with the U.S. masses, moving ahead of Apple (Nasdaq: AAPL) in the U.S. mobile market during May. Android reportedly had a 28% share, compared to Apple's 21%, and just behind Research in Motion's (Nasdaq: RIMM) 36%.

In late-June, several sources were saying that Google is taking up an initiative to chip-away at Apple's share of the music market, with the launch of their own online music store. The move would be lucrative for Google, with the only shortfall that might be noted is the ability to penetrate Apple devices...they can't. However, with Android picking up steam, and having a much wider distribution over several devices and carriers, the move could be swift and fluid, garnering another market for Google. However, word is spreading that Amazon.com (Nasdaq: AMZN) may be looking to revamp their Amazon MP3 store. They recently tweeted a job page for developers, mostly work out of San Francisco, CA. Amazon currently has a 12% piece of the market, according to NPD research, compared to Apple's 70% share.

But, this preview isn't about Apple nor Amazon. It's about Google. Long story short, Google got its hand slapped from China, but recently got their license to operate in the country renewed.

Notably, Google now becomes a relative value-play versus its competitors, trading at about a 17x forward P/E. Yahoo! (Nasdaq: YHOO) is going for 22.6x, Apple is trading at 18.3x, Baidu is at [gulp!] 60.1x, AOL (NYSE: AOL) is 15.1x, and Microsoft (Bing!) (Nasdaq: MSFT) is at 12.4x.

Deutsche Bank recently said that Google is one of the best positioned in eCommerce regarding foreign exchange fluctuations. They note that their profits are hedged against currency, and that "paid search gains over Yahoo should fuel share gains." Deutsche did lower their price target on the company, from $700 to $655, which still represents a 33% premium over today's trading range.

Estimates on Google throughout the quarter have been moving lower. With Wall Street sentiment low on Google, this sets the company up for an upside surprise. However, unless Google can prove it can regain its mojo investors may continue to wait on the sidelines.

Google Inc. is expected to release their Q210 earnings on Thursday, July 15, 2010, at approximately 4:00pm EDT. Stay tuned to StreetInsider.com's Earnings section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

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