Analysts weigh in on Google earnings tomorrow

January 19, 2011: 3:46 PM ET

Google reports earnings after the closing bell tomorrow and analysts weigh in on that they expect.

Sorry for the jargon, folks, but the analysts following Google aren't really the literary type. Reading through, there's not too much surprising here-- analysts are all expecting a blowout quarter for Google, due in large part to the holiday season. Let's check in on how much they see Google pulling in and what that'll do to the share price:

Citi's Mark S. Mahaney who is a Google (GOOG) buy at a target price of $725 says:

We are looking for $6.05B inNet Revenue (up 22% Y/Y and up 10% Q/Q) and $8.01 in non-GAAP EPS. This compares with consensus expectations of $6.05B and $8.07. Based on extensive intra-quarter channel checks and our model sensitivity work, we believe Street Q4 estimates are reasonable, although we would expect limited EPS upside, as continued heavy investment spend will likely offset any revenue upside.

Justin Post at BofA Merrill Lynch who has a $710 price objective"

Expect 4Q rev. upside, spending may keep EPS in check
Positive comments from advertisers gives us confidence that 4Q results in the UScan beat street (Europe may not be as strong). We are raising our 4Q revenue est. by $55mn but maintaining EBITDA/EPS on higher opex (aggressive hiring,marketing and bonuses). We are now at 4Q rev/EPS $6.14bn/$8.24 vs. street at$6.05bn/$8.06, and we anticipate revenue modestly above Street estimates, and in-line with rising buyside expectations for +12-13% q/q growth ($6.1-6.2bn).

Oppenheimer raises their price target $65 to $705 and says:

We are implying 13% upside potential. This is partially driven by rolling our target forward to discount 2012, and modest assumptions for higher Non-Search revenue such as Display, YouTube, Mobile and Maps. This assumes the "Non-Search Spread" increases to6% in FY13 from 3% in 3Q10, or an additional $3B. For 4Q10, we generally expect solid results, driven by strong eCommerce sales. However, the launch of Google Instant created some noise in the data we use to predict quarterly results. Regardless, even with margins below the Street, we expect 2% upside to non-GAAP EPS. Google remains rated Outperform.

Barclay's Douglas Anmuth who maintains his Price Target of $675:

We believe Google will report 4Q results that are likely to beat our +10.8% Q/Q net revenue projection on what we believe were strong holiday sales, fast growth in display and mobile, continued CPC increases in key verticals, and solid paid clicks growth. Our sequential net revenue projection compares to consensus of 10.5% Q/Q and what we believe are buyside expectations closer to +13%.

Piper Jaffay's Gene Munster, who believes Google has left Social and just whiffed on AAPL has a price target of $652:

We believe Google is tracking to report an essentially in-line Q4 and remain buyers leading up to the company's Q4 report; however, we do not expect significant revisions to forward expectations as we believe the Street's 18.5% growth estimate for FY11 is reasonable. The Street is looking for 22% y/y and 10% q/q revenue growth in Q4 2010. eCommerce data from comScore and the Chase Paymentech eCommerce Index suggests sales accelerated from last year. Additionally, an SEM CPC report suggests CPCs increased meaningfully Y/Y.

ThinkEquity's Aaron Kessler raises target GOOG  to $780 and says:

Given positive fundamental trends combined with an attractive valuation, in our opinion (18x 2011E PF EPS or 16x ex cash vs. 15% LT growth), we maintain a positive bias on shares going into earnings. Based on our 4Q channel checks as well as a robust 4Q eCommerce period, we are modestly increasing our 4Q estimates - we now estimate sequential net revenue growth of 12% vs. ourprevious estimate of 10%. Additionally, we are increasing our price target from$760 to $780 (approximately 20x 2012E PF EPS) as we move to 2012 as the basis.

J.P. Morgan's Imran Khan whose $625.00 price target is below Google's current trading says:

4Q Preview: Expect a Strong Quarter
We are modeling 4Q revenue and PF EPS of $6.23B and $7.92 vs. consensus of $6.06B and $8.08. We expect revenue to be up ~13% sequentially, broadly in line withour model and ~2 pts higher than consensus. We think there could be potential upside to our EPS estimates as margins may have slight upside. Our key takeaways:

  • We think US gross revenue will grow 9% sequentially.
  • We are modeling int'l revenue to grow 11% Q/Q.
  • We expect modest upside to our 4Q reported net revenue operating margin of 47.1% (vs. 50.1% a year ago).
  • Capex needs to escalate.
  • Non-search business revenues likely to be strong.

Merriman Capital's Richard Fetyko, who just bumped Google target range up $50 to $675-$725 says:

We believe that Google is likely to exceed consensus estimates for 4Q10, driven by strong e-commerce spending, which drove up search volume, click-through rates (CTR) and cost-per-click (CPC). We also raised our FY11 estimates to reflect faster growth in the core search marketing business as well as a growing contribution from display, video and mobile advertising initiatives.

Steifel's Jordan Rohan also raises his Price Target $50 to $700 and says:

We believe Google benefited from better-than-seasonal trends in eCommerce, robust increases in mobile search activity, and improved monetization through insertion of paid display ads in product search results pages.
• 4Q10 Estimates: We are increasing our 4Q estimates to reflect what webelieve will be above-consensus results. We now forecast net revenuesof $6.1bn (+11.4% q/q), EBITDA of $3.76bn (61.6% margin) and PF EPSof $8.21 vs. consensus of $8.03.

• 1Q11 Forecast: First quarter consensus net revenue estimates (flat vs.4Q) are likely too low by a healthy margin, especially with lower payoutsto AOL, which translates to higher sequential growth in net revenues.

• Increasing 2011 and 2012 Estimates: Our net revenue forecastincreases slightly by $163m to $26.1bn while a decreased opex assumption results in a $0.96 increase in PF EPS to $34.10. 2012Erevenue increases by 4% to $30.1bn and PF EPS increases $2.63 to$38.96.

Youssef H. Squali at Jeffries raises his target GOOG $10 to $710 and says:

  • Raising 4Q estimates. We expect net revenue and NEPS of $6.2B and $8.41 vs. $6.01B and $8.00, previously. Current consensus stands at $6.05B and $8.07. We've also raised our FY11 estimates to $26.47B and $34.26, from $25.98B and $34.06, previously. Mgt provides no forward guidance.
  • Checks show robust CPCs/query/traffic growth. Channel checks with SEO/SEMs and others intra quarter suggest that holiday ad spend was resilient to economic uncertainty, as demand was stimulated by aggressive online promotions early in the season, culminating in Cyber Monday hitting a record $1B+ in sales. Overall retail sales in the US were up 12% Y/Y, at the high end of our 10-12% estimate. Increased promotional activity led to higher CPCs for Google with CPCs up between mid-single digits and high-teens Y/Y across important categories like Retail, Travel, Finance and Autos (we're modeling for +6%). In terms of volume, Google's US explicit query growth, a proxy for US paid click growth, grew by 14.3% Y/Y in 4Q, faster than the overall market (SCOR).
  • FX, a tailwind. With int'l revenue accounting for ~52% of sales, we believe that the 4% Q/Q decline in USD vs. the company's basket of currencies should result in an unhedged rev. gain of ~246M in 4Q, ~$0.32 impact on NEPS. That said, GOOG's hedging program may offset some or all of the F/X impact.
  • New estimates reflect 4Q bonus payment/salary hike. We modeled for a $31M ($0.08 EPS) charge in 4Q to account for a $1K after-tax holiday bonus, announced in November. We're also modeling for 10% raise for eligible employees starting Jan 1st.
  • GOOG, still a top pick. On top of a core search franchise that remains strong, Google's mobile and display opportunities remain vast. With 26% of all US smartphone users claiming an Android device as their primary phone (vs. Apple's 25%-comScore), Android's adoption has been a success. With ~300K activations daily in 4Q, Android is offering large and local advertisers a growing platform to deliver locally-focused mobile ads on top of a robust search offering. In Display, we estimate that Google is second only to Yahoo! with ~8% market share, and we expect it to become an even stronger player in 2011.

We'll be covering Google's earnings announcement as it happens.  Check in tomorrow after the bell.

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About This Author
Seth Weintraub
Seth Weintraub

Google went from searching the Web to worming its way into nearly every facet of business and government. Seth Weintraub unveils where the company is going, who it's competing with, who it's about to compete with and how market forces push the company to veer or adhere to its Don't Be Evil motto. For 15 years, Weintraub was a global IT director for a number of companies before becoming a blogger.

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