THE GOOGLE INVESTOR: Wall Street Can't Agree On The Quarter

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GOOG Up Strong
With positive earnings announcements this morning, shares of GOOG are up over 1%. Second quarter results will be released on Thursday, July 15 at 4:30pm EST. Other catalysts include Android and mobile adoption; the release of Chrome operating system this fall; as well as traction in other newer initiatives. The stock trades at approximately 17x 2010 EPS and 14x Enterprise Value / EBIT, inexpensive relative to historical trading levels and the broader Internet group.

Wall Street’s Google Earnings Preview (Various)
Gearing up for Thursday’s earnings report from the Internet bellwether:

  • James Mitchell at Goldman Sachs has had conversations with search marketing professionals which have been mixed for Google. He sees benefits from monetization initiatives, Yahoo! search revenue share loss, and display, and a drag from stabilizing U.S. query share and distractions (elections, soccer World Cup) abroad.
  • Barclays Capital analyst Douglas Anmuth is comfortable with his (1.9%) quarter-over-quarter revenue projection and believes investors are a bit below his estimate at (2-3%). An in-line or slightly better number could bring some near-term relief to Google shares. He believes the shares are attractive at the current valuation and reiterates his Overweight rating and price-target of $650.
  • Citigroup analyst Mark Mahaney is looking for (3%) sequential revenue decline, lower than the Street. Based on extensive intra-quarter channel checks and model sensitivity work, he believes Street second quarter earnings estimates could be at risk, in part because some Street estimates haven’t been adjusted for FX and reduced Nexus One revenue. He reiterates his Buy/High Risk rating and price-target of $630.
  • Expect second quarter results to show healthy demand for search advertising says Jefferies analyst Youssef Squali. However, FX, hedging and Nexus One are likely to cause some noise in the numbers this quarter. He remains positive on Google given improving e-commerce trend, expanding ad budgets and low valuation and reiterates his Buy rating and $660 price-target.

Google’s Growth Accelerates While Search Share Is Flat (Bank of America Merrill Lynch)
In taking a closer look at the comScore June search market share numbers, Justin Post at BAML writes that Google’s search growth was up 13% year-over-year in June and (excluding the additional searches at Bing and Yahoo) Google’s share would have been down 20 basis-points month-over-month at 66.2%.  In the second quarter, Google grew searches 3% quarter-over-quarter, above the 1% core U.S. growth expectation, and search engine marketers (SEMs) are indicating cost-per-click (CPC) growth in the key retail vertical. JP Morgan’s Imran Khan has another take.

So Scared Of Facebook, Google Backhandedly Invested In Facebook’s Largest Gamer (TechCrunch)
Google secretly invested $100 million in gamer Zynga. Why? For one thing says Nicolas Carlson at Business Insider, Facebook will soon become the largest site in the world, and games have been a big part of that growth. Anything Google can do to turbocharge its own growth is helpful. And, people suppose that Google is concerned Facebook could disintermediate algorithmic search with search results organised by your friends’ interests. Anything Google can do to gain some control over the social graph (knowing who your friends are) is helpful as well.

The Google / Apple Battlefield In China Gets Heated (Forbes)
Apple opened its flagship retail store in Shanghai over the weekend. But this battlefield might be different. For one, Apple makes the hardware in China and has no inventory risk given that carrier partner China Unicom buys its supply from Apple. Google’s revenue model is based on  advertising and location services, an area where the Chinese government has had well documented issues. While Android might outsell iPhone 3 to 1, the margin gained for each iPhone will significantly outweigh Android.

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