Google Earnings Preview – First Quarter 2010

Internet giant Google [[GOOG]] is scheduled to report their first quarter 2010 results after the market closes on Thursday, April 15.


Last quarter, Google delivered a nice earnings beat with earnings per share (EPS) that was $.31 ahead of Wall Street’s expectations. However, Google’s shares tanked following the earnings release and have still not recovered as investors worry over Google exiting the China market. We are expecting another earnings beat this quarter, and we are hopeful that Google’s stock price will jump on the positive earnings news.   


The fourth quarter saw average cost per click (CPC) increase by 5% and we expect to see similar gains in the first quarter. Youtube began showing considerable strength in the fourth quarter and it appears that trend has continued in the first quarter with their homepage inventory completely sold out.


In 2009, Google’s shares more than doubled as gross revenues grew 17%. GOOG’s strong stock performance has not carried over into 2010 though, with the stock declining 8% since the beginning of the year.


The current Wall Street consensus estimates are for revenues of $4.93 billion and EPS of $6.57. We at are forecasting better than expected results, with first quarter revenue of $4.98 billion and $6.74 EPS.


Google is now trading at 18x consensus 2011 EPS estimates. This is below the relative valuations of their peer group. Despite exiting the China market, Google appears to have tremendous growth opportunities over the next few years and we would expect its stock price to return to its pre-recession levels.


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