Google Earnings Preview: Poised For Strong Fourth Quarter

Google [[GOOG]] is scheduled to report their fourth quarter 2009 results after the market closes on Thursday, January 21, 2010. Based on our analysis, we at are expecting Google to report stronger than expected quarterly results that will exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $4.91 billion and EPS of $6.60. This would represent a 16% increase in revenues from last year’s $4.22 billion in the same period. The current analyst consensus estimates calls for revenues of $4.88 billion and EPS of $6.43.


Earnings Analysis

Strong search volumes should lead to a fairly easy earnings beat for Google this quarter. The number of value-conscience shoppers has increased significantly as the economic recession has turned many regular shoppers into bargain hunters. As shoppers shift more of their spending online, the quest for better deals is leading to increased search volumes and more time spent online.


Google continues to keep their name in the headlines. Earlier this month they launched the Google Nexus One phone and just yesterday announced that could potentially exit the Chinese market. While Google’s estimated 14% market share in China is marginal compared to Baidu’s [[BIDU]] 62% share, investors shouldn’t underestimate the long-term impact of exiting this market.


Stock Performance

Google’s stock price more than doubled in 2009 (102% gain) and easily outperformed the 19% increase in the Dow Jones industrial average. However, Google shares have dropped 5% since the beginning of 2010.



Google stock is now trading at 23x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. Despite long-term concerns over exiting the China market, Google looks poised for a strong quarter and their shares are still attractively valued.


Recommendation: Buy with a $660 price target


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