Google Earnings Preview: First Quarter 2009

Google [[GOOG]] is scheduled to report first quarter 2009 results after the market closes on Thursday, April 16. Based on our analysis, we at EarningsPreview.com are expecting GOOG to report disappointing results that fail to meet Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $4.06 billion and EPS of $4.91. This would represent a 10% increase in revenues from last year’s $3.70 billion in the same period. The current analyst consensus calls for revenues of $4.09 billion and $4.96 EPS.

 

Wall Street’s consensus estimates continue to come down as performance expectations have continued to be tempered. It’s clear that online advertising budgets are being cut. While Google remains one of the most cost efficient advertising options, we have heard from several advertisers that they are reducing their Google spend.

 

Our checks also show that average CPC’s have fallen during the first quarter which should be partially offset by increasing search volumes. Top line growth will also be hindered by the appreciating U.S. dollar as approximately 50% of Google’s revenues are generated internationally.

 

Share Performance

Google’s shares are up 17% since the beginning of the year, and has easily outperformed the 10% decline in the S&P 500. In 2008, GOOG shares dropped over 55% to post their first annual decline since the company went public.

 

Valuation

Shares are now trading at only 15x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. We believe that the investments thesis for Google is still intact and based on the current valuation levels and the future opportunity of the business we would recommend buying shares at these prices.

 

Recommendation: Buy with a $450 price target.

 

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