Google Earnings Preview: Second Quarter 2009

Google [[GOOG]] is scheduled to report their second quarter 2009 results after the market closes on Thursday, July 16. Based on our analysis, we at are expecting GOOG to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $4.15 billion and EPS of $5.21. This would represent a 6% increase in revenues from last year’s $3.90 billion in the same period. The current analyst consensus estimates calls for revenues of $4.05 billion and EPS of $5.05.


We are expecting solid second quarter results out of Google based on increased activity levels and pricing stabilization. Based on Compete data, Google’s unique visitor count increased 6% in the second quarter. Meanwhile, RPC appears to have stabilized from the first quarter with some categories even seeing increases. Google’s pay-for-performance model has allowed the company to continue growing in recent quarters despite the gloomy economic environment and we expect that growth to continue this quarter.


Looking ahead, Google appears to be making some long-overdue moves to maximize their revenue opportunities while reigning in excessive costs. While they have not yet resorted to placing ads on their homepage, there are other opportunities which should help lift the top-line in coming quarters. In addition, the announcement of a Chrome operating system could make their not-so-friendly competition with Microsoft [[MSFT]] even more interesting even as MSFT appears to be having better-than-expected success with their new search engine Bing.


Share Performance

Since the beginning of the year, Google’s shares are up almost 35%. In 2008, GOOG’s shares fell nearly 56% as the stock underperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 17x consensus 2010 EPS estimates. This is below the relative valuations of their peer group. Despite the nice run-up the stock has recently experienced, Google still trades at a discount to its internet peers. However, there remains real concerns over Google’s ability to continue to take market share in the search space. However, Google should experience a nice lift in 2010 as the economy begins showing signs of recovery.


Recommendation: Hold with a $430 price target.


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