Google Q4 Earnings Preview: Meaningful Upside Expected

Google reports tonight after the close. Conference call at 5pm EST / 2pm PST. We will provide live analysis of the results and conference call.

Google does not give guidance, but in the past has provided some vague, macro comments about the current quarter. If it does, this will be more important for the stock than the Q4 results. Investors are also concerned about a drop in Google’s Comscore numbers in December (noise, in our opinion), the impact of a recession, and Google’s wireless plans. Any commentary about the latter two will be important.

After modelling the quarter, we think there is a potential for meaningful upside to the consensus revenue and earnings estimates, including the EPS “whisper” of $4.49. We also think such upside is baked into the stock’s price (translation: If the upside isn’t meaningful, look out below).

Analysts are assuming a relatively sharp deceleration in Net Revenue: to 55% y/y growth from 66%, 63%, and 62% in the previous three quarters. The EPS calculation depends heavily on the tax rate, which is hard to estimate, but the consensus EPS estimate appears to assume a modest sequential decline in net operating margin, which seems unlikely.

SAI Spreadsheet: Google Financial Analysis

Consensus for Key Metrics

  • Gross Revenue: $4.8 billion, up 50% (vs. 57% in Q3 and 58% in Q2)
  • Net Revenue: $3.45 billion, up 55% (vs. 62% in Q3 and 63% in Q2)
  • Operating Income (Adjusted): about $1.7 billion, 49% of Net Revenue, down from 50% in Q3
  • EPS: $4.45 ($4.49 whisper)
  • Google Sites Revenue: $3.2 billion, up 60% (some upside here)
  • Google Network Revenue: $1.6 billion, up 34%
  • Traffic Acquisition Cost rate: 84% of Network Revenue

See Also: Why Wall Street Hates Google Now: That Wireless Thing

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