Q3 Preview: Google (GOOG) Should Beat as Ad Spending Ramps; Motorola (MMI) Questions Remain

Google Inc. (Nasdaq: GOOG) shares are trading stronger Thursday heading into it's third-quarter earnings report.

After the market close, Google is expected to report earnings of $8.74 per share on revenue of $7.21 billion. Such results would be just about flat from the $8.74 reported last quarter, and a 14.4 percent gain over the same period last year. Google has bested earnings estimate by an average of 8 percent over the last four quarters, and applying that sort of percentage to this quarter suggests earnings of $9.45 per share.

Shares gained 1.7 percent in the quarter and are down 7.4 percent since. The stock is down 7.0 percent on the year and has traded in a range of $473.02 to $642.96 over the period.

Google shares currently trade for 13.2x fiscal 2012 earnings expectations, compared with 18.7x for Yahoo! (Nasdaq: YHOO), and 54.0x for AOL (NYSE: AOL).

Data from Bloomberg shows 36 analysts have a Buy rating on Google, four maintain a Hold, and none rate it a Sell. The Street price target average is $712, with a low of $575 and high of $830.

Analyst Comments

• Goldman Sachs is modeling for EPS of 8.62 on revenue of $7.17 billion. Goldman said checks point to "healthy query growth and strong monetization of product listing advertisements. As such, we expect a solid quarter, with slight upside to net revenue forecasts. As for FX, despite the sharp rise of the US dollar in the past month, we expect about a 50 qoq currency tailwind as Google uses prior month-end spot rates for currency translation."
  
  Goldman sees foreign exchange headwind of 75 basis points in fiscal 2012, and the macro environment might mean revisions to top-line numbers.
  
  
• JPMorgan sees EPS of $8.68 and revenue of $7.28 billion. Estimates call for paid click growth and CPC growth of 17.5 percent and 11.1 percent, respectively. "We believe Google's US search business continues to benefit from search ad spending share gains from the MSFT/YHOO alliance. In addition, we think that CPCs in newer markets such as India and Brazil will likely continue to converge toward CPCs in more established markets."
  
  JPMorgan sees Google continuing to take display business away from rivals, which might show up in earnings. Further, the firm expects limited commentary on Motorola Mobility (NYSE: MMI).
  
  
• BGC Partners is looking for earnings of $9.05 and revenue of $7.5 billion, to the upper-end of estimates. BGC said, "Our revenue estimate is fueled by our expectation for above average increases in click pricing, which we estimate are going to increase by 12% YoY, compared to 4% growth in the prior year and 12% growth in the prior quarter...we expect the company is able to maintain click price growth exceeding 10% for the rest of the year. Our above consensus earnings estimate is driven by a) revenue and b) the expectation that the company moderates its pace of hiring to under 2,000 new additions per quarter."
  
  
• Piper Jaffray's Gene Munster made some comments not long ago pertaining to what the Street will be expecting. Two questions raised were: what another recession will go to Google, and what the Motorola acquisition will do to margins. On margins, he's looking for compression from 46 percent to the 30 percent range following the Motorola acquisition. Additionally, Munster said Google is not immune to economic downturn, as could be seen in 2008.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Google's past performance at Streetinsider's Google Income Statement.

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