Google reports Q3 results this evening after the close. Please join us at 4PM for LIVE ANALYSIS.
The good news: Google has a better chance of surprising on the upside this quarter than last quarter, because expectations are so low. In fact, Wall Street analysts are openly calling for a miss. With Google’s stock down to $315, this could lead to a nice short-term trade.
That said, even if the company clears a low bar, any hint that the tanking global economy is starting to bite the company (and how can it not?) will likely keep a lid on the stock over the next few months. Also, Street estimates for 2009 are still too high, in our opinion, and need to come down. It’s hard to see how the stock rallies sustainably in the face of that.
Please join us this afternoon for live analysis of Google’s results and conference call. We’ll be using a new live-blog feature that will allow you to participate (more fun, saves you from having to refresh the page a hundred times, and allows everyone to benefit from everyone else’s questions and insights). Hope to see you then!
Mark Mahaney of Citigroup offers the following excellent “Cheat Sheet” for Google’s Q3. Citi’s net revenue expectations are in line with the Street’s ($4.05 Billion). Note that Mark thinks that a “neutral” performance would be below the consensus estimate. The Street’s adjusted EPS estimate, meanwhile, is $4.79. Mark thinks traders are actually looking for EPS in the range of $4.70-$4.79.
As it has been over the last year, the big story for Google is revenue deceleration and margin compression. These have led the stock’s multiple to compress from 40X-50X free cash flow to a far more reasonable 20X. The latter multiple is sustainable. We don’t expect a sustained rally in the stock, however until revenue growth stabilizes (i.e., stops decelerating). Anyone’s guess when that will be, especially with Google having no new products in the pipeline.
Mark Mahaney’s revenue analysis and Street earnings estimate analysis are below. Note that Mark’s 2009 revenue estimate is far below the Street’s. We agree with him that consensus estimates need to come down.
LIVE ANALYSIS: Google Q3 Earnings, Thursday 4PM ET
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