Google Earnings Set to Move Peers, a Full Preview (GOOG, BIDU, YHOO, MSFT, AAPL)

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Google Inc. (NASDAQ: GOOG) is on deck for earnings after the close.  We have given a full review and preview for earnings, along with what analyst targets are, what the chart reading is, what options traders are looking for in the share price move, and a comparison to the previous quarter.  Google’s earnings may have a direct impact on Baidu, Inc. (NASDAQ: BIDU) and Yahoo! Inc. (NASDAQ: YHOO), and an indirect impact on Microsoft Corporation (NASDAQ: MSFT) and Apple Inc. (NASDAQ: AAPL).

Thomson Reuters has estimates of $6.52 EPS and $4.99 billion in ex-TAC revenues.  The headline number will of course be larger, because the company does not break out its revenues after traffic acquisition costs in the initial summary.  Last week, the estimate was $6.54 EPS and the figures have really not changed that much throughout the quarter.

Google does not give guidance, but we wanted to include this for forward valuations.  For the next quarter, estimates are $6.83 EPS and $5.21 billion in revenues; for the fiscal year its estimates are $27.59 EPS and $21.03 billion in revenues.  This translates to about 17.6-times 2010 expected earnings and about 7.7-times forward revenues.  If you use the 2011 earnings estimates for what some would call a blended 2010-2011 forward estimate: Google trades today around 15.4-times next year’s earnings and about 6.4-times revenues.

Analysts remain positive on Google and the average price target is now around $650.00, implying more than 30% to the upside target.  Options traders were braced for a move of more than $13.00, and a synthetic straddle would have cost more than $18.00 combined for each of the closest out of the money strikes ($490 CALL; $480 PUT).

Google in the last couple of sessions has risen above its 50-day moving average, which is now $483.92.  Its much more important moving average is that 200-day moving average, which is up all the way at $540.87.  That being said, there is a lot of room for this stock to swing either way after the news is out.  Since stocks began their rally in early July, keep in mind that shares have risen about $50.00 in that time frame.  The 52-week trading range is $423.50 to $629.51.

Here were some of the key metrics which the company disclosed at the APRIL EARNINGS release:

  • Google-owned sites generated revenues of $4.44 billion, or 66% of total revenues; same as the prior quarter.
  • Google’s partner sites generated revenues, through AdSense programs, of $2.04 billion, or 30% of total revenues; down from 31% the prior quarter.
  • International revenues were the same as the prior quarter at 53% of total revenues.
  • Traffic Acquisition Costs as a percentage of advertising revenues was 26% last quarter versus 27% in both the prior quarter and year earlier quarter.
  • Paid clicks were up 5% sequentially last quarter but up 15% from a year earlier.
  • Operating expenses (other than cost of revenues) were 27% of revenues, same as before.
  • Stock-Based Compensation was $291 million versus $276 million a quarter before and Google gave 2010 guidance of $1.2 billion for that item.
  • Cash and equivalents came in at $26.5 billion versus $24.5 billion the prior quarter.
  • Google’s headcount of employees was 20,621, up from the prior quarter of 19,835.

There were several key issues that are to watch, and again remember that the revenue to watch is not the headline number but the ex-TAC revenue number.  China has renewed Google’s operating license, and this is where it will be key for Baidu.  Google’s Droid phones are continuing to sell well in carrier markets, and Apple’s latest iPhone 4 issues are actually an opportunity now rather than a thorn.  Google had some spotty CPM activity in June and into the first part of July, but that time of year is highly dependent upon which sector of the ad market is up for discussion.  The brief dip it had in the share of search is also something which went back to being closer to its previously higher rates.

The last issue to consider is that Google is now into so many areas that you have to wonder if its next platform will be manned space flights.  That is, of course, facetious.  One of the criticisms that keeps coming up in private discussions is that there are so many areas it is targeting that the company could be on the verge of where Microsoft was eight to ten years ago.  It now has regulatory issues as well, although far shy of what Microsoft faced.

JON C. OGG

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