Former Google bulls have been slashing estimates left and right (Goldman joined the herd this morning) in response to the growing consensus that Google’s revenue growth won’t be all that they cracked it up to be. Most bulls say the slowdown is “self-inflicted”–Google is just improving the quality of its searches and clicks to make everyone even more happy–and there is likely at least some truth to that.
We expected estimates to come down (see “Google Estimate Cuts Coming Soon To an Analyst Near You“), and now that they have, we think the Q1 consensus is likely close to where the company will come in. We’ll publish a detailed quarter preview soon. In the meantime, a reader asked us to speculate about what would happen if Google is actually having a strong quarter.
The current revenue consensus calls for Google to deliver $3.61 billion of net revenue in Q1. This would be 42% year-over-year growth, a sharp deceleration from the 52% in Q4. We estimate that the company can hit $3.6 billion even with US growth decelerating to 20%-25% growth from 40% in Q4.
This would be extreme deceleration–the US business grew between 40%-49% every quarter last year. If positive anecdotal reports from search engine marketing firms are to be believed, therefore, there is a decent chance that Google will significantly exceed $3.6 billion in Q1. Growth of merely 30% in the US, for example–still a major deceleration–would put overall revenue in the $3.7 billion range.
What would happen if Google hit $3.7 billion or more?
The stock would probably pop at least $50 in aftermarket trading (10%-15% boost). The stock of Comscore, meanwhile, whose paid-click reports have inspired much of the Google caution, might get slightly hit. We don’t think Comscore’s stock would collapse–the stock has already been cut in half, the firm’s data is what it is, and people will still obsess about it–but Comscore bears would certainly have some ammunition with which to say the company’s data is irrelevant, at least to Wall Street.
More detailed analysis of the quarter soon…
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