Google Earnings Preview: Second Quarter 2011

Google is scheduled to report their second quarter 2011 results after the market closes on Thursday, July 14, 2011. Based on our analysis, we at EarningsPreviews.com are expecting Google to report mixed quarterly results that will disappoint Wall Street’s consensus expectations.

 

Earnings Analysis

Google comes into this earnings season on the hot seat. New CEO Larry Page needs to show investors and Wall Street that he (and Google) can still deliver impressive results. Last quarter was an atrocity with Google delivering disappointing results and Page not sticking around to even finish the earnings call with Wall Street analysts.

 

This quarter Wall Street is expecting revenue growth to accelerate to nearly 29 percent y/y. That seems like a stretch for a company with new leadership that has proven they can deliver consistent results. There does appear to be opportunity for Google to deliver better than expected bottom line results, but that may not be enough to appease investors.

 

Analyst Expectations

We are forecasting revenues of $6.46 billion and EPS of $7.98. This would represent revenue growth of 27 percent from last year’s $5.09 billion in the same period. The current analyst consensus estimates calls for revenues of $6.54 billion and EPS of $7.86.

 

Stock Performance

Since the beginning of 2011, Google’s stock price has declined over 10 percent and has underperformed the 9 percent gain in the Dow Jones industrial average.  

 

Valuation

Google stock is trading at a valuation of 14x consensus 2012 EPS estimates. Google’s shares are not inherently expensive IF they can deliver on Wall Street’s expectations. Right now that is still a big if. We would recommend waiting to purchase Google stock until we have more clarity on their ability to perform against the Street’s expectations.

 

Recommendation: Hold

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