Q4 Preview: Bulls Aplenty Into Google (GOOG) Results

Shares of Google (Nasdaq: GOOG) are trading up nearly 0.8 percent Thursday ahead of the release of its fourth-quarter results after the closing bell.

The Wall Street quarterly consensus for Google is $10.49 per share in earnings on $8.41 billion in sales. During the fourth quarter of last year, the company reported earnings of $8.75 per share on $6.37 billion in total sales.

For the full year 2011, analysts on the Street are currently estimating $36.90 per share in earnings on $29.32 billion in total sales.

The fourth quarter conference call is scheduled for 4:30 pm ET.

According to data from Bloomberg, shares of Google have 34 Buy ratings, seven Hold ratings and no Sell ratings. The average price target on shares of GOOG is $738 with a range from $700 to $850.

Analyst Comments:

• For the quarter, Goldman Sachs’ estimates are relatively mixed with the Street’s consensus as they forecast earnings of $10.75 per share on $8.33 billion in sales. The firm highlights market checks indicating better-than-expected ad spend on higher query volumes and rising click-through rates. Goldman’s estimates are based on a model of paid-click growth of 26 percent and CPC growth of 1 percent year over year. The firm highlights CPC comps will be likely flat to negative for the second quarter of fiscal 2012 as estimates are likely to move higher for the first quarter.
  
  An analyst at Goldman said, “While Google’s initiatives in mobile and display continue to grow rapidly and the core search business remains strong, in our view the pending MMI acquisition remains an overhang on the shares as the company’s business model will evolve. We see Google as leveraging MMI not only to strengthen its patent position in mobile, but also we believe it needs a way to build a strong presence in the tablet market given Windows 8 tablets will likely hit the market in 4Q2012 and as Apple (Nasdaq: AAPL) is likely to lower the price of iPad 2 upon the introduction of iPad 3 late in the March quarter.”
  
  Goldman currently has a Neutral rating and $685 price target on shares of GOOG.
  
  
• Wells Fargo downgraded shares of GOOG from its previous rating of Outperform to Market Perform Wednesday as it sees “a number of emerging headwinds that could counterbalance the positive secular growth drivers in the core business,” in 2012. The firm reiterated its price valuation range of $620-$640.
  
  Head winds include; integration of Motorola Mobility, tougher comparables, potential for increased regulatory scrutiny, conceivable increase in operating expense to support adjacent growth initiatives as it battles AMZN, AAPL, MSFT & Facebook, negative impact from FX due to the stronger dollar, and minimal room for multiple expansion.
  
  The firm estimates earnings of $10.45 per share for the quarter on $8.31 billion in sales as it models 8 percent CPC growth, 20 percent paid click growth, and 1,300 additional headcount adds. Wells Fargo doesn’t expect currency to have a major impact on earnings.
  
  “In our view, the biggest challenge for Google is the pending MMI acquisition,” an analyst at Wells Fargo stated.“ We think Google acquired MMI for both the patents and the business. We don't expect them to spin-off MMI and believe they see value in having integrated devices like Apple. The inclusion of the lower margin MMI business means Google's model will likely begin to look more like Apple's.”
  
  
• Analysts at JPMorgan are extremely bullish on shares of GOOG going into the earnings release following a conference call with Performics chief executive officer Daina Middleton and SVP Strategy & Analytics Matt Miller. The firm forecasts earnings of $10.52 per share on $8.43 billion in sales.
  
  “We believe Google to be a primary beneficiary of the growing online advertising market, with notable share gains in display,” reports JPMorgan. “We forecast display ad growth to outpace search, driven by online video, mobile, and social networks. We believe increasing adoption of connected devices (smart TVs, tablets, smartphones) will help drive increasing online video ad revenues, with Google’s YouTube being a primary beneficiary.”
  
  JPMorgan has it has an Outperform rating and $730 price target on the company.
  
  
• “We are buyers of Google with 4Q earnings in mind and feel comfortable with our current 4Q estimates,” said a Deutsche Bank analyst. The analyst forecasts earnings of $10.03 per share on $8.26 billion in net revenues.
  
  An analyst at Deutsche commented, “Motorola Mobility recently preannounced weak top and bottom line results for Q4, shifting investor attention back to the impending acquisition of a handset business. We see the strategic rationale for vertical integration, reducing reliance on distribution partners for mobile search. But execution will present enormous challenges around; creating compelling products, consumer marketing, customer service, and management focus.
  
  The firm has a Buy rating and $645 price target on the company.
  
  
• BGC sees extreme upside to earnings for the quarter as its forecasts Google will report earnings of $10.84 per share for the quarter and believes its core business will set new records. The firm notes cost per click and paid clicks had been steadily increasing over the course of 2011 and expects strong fourth quarter results to go along with the trend.
  
  An analyst at BGC said, “Shares of Google tend to work better in the second half of the year, in our opinion, as search activity and click pricing both accelerate tied to holiday spending. Google may lose some momentum once the holiday season has passed and the company struggles to integrate its low margin hardware acquisition, and we expect to review our rating once that happens.”
  
  The firm maintains a Buy rating and a $650 price target.

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