THE GOOGLE INVESTOR: Earnings Preview - Revenue Likely To Exceed But Prepare For Terrible Earnings

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eric schmidt

Associated Press

GOOG Up As Market Waits
Major equity averages are under pressure in early trading as most investors await news from the Fed on possible action to kick-start the economy. Shares of GOOG are up ~$4. Upcoming catalysts include third quarter earnings announcement (Thursday, October 14, 2010 at 4:30pm ET), continued Android growth; the release of Chrome operating system this fall; regaining momentum in China; as well as progress in other newer initiatives (Google Me, gaming, social, etc.) The stock trades at approximately 15x Enterprise Value / EBIT, inexpensive relative to historical trading levels and the broader Internet group.Earnings Previews Ahead Of Thursday Report (Various)
The analysts come out swinging:

  • Justin Post at Bank of America Merrill Lynch tells investors to expect third quarter revenue upside (Europe, eCommerce and currency benefits) but spending will keep EPS in check (aggressive hiring, acquisitions and marketing). The two biggest investor concerns are core growth stability and margin pressure. Results that suggest core search is maintaining strong growth or commentary that investment growth is peaking would be positives. With the stock up 13% since the middle of September, Justin is not anticipating a big positive move on the results. He reiterates his Buy rating and price-target of $640.
  • Citigroup analyst Mark Mahaney believes there could be near-term EPS risk. However, he believes the long-term risk / reward remains attractive. Specifically: 1) There is still growth ahead for online advertising (only 10% of global marketing dollars are currently online); 2) Search has been and remains the most dynamic / best growth segment of advertising; 3) Google’s option value in terms of other ad segments is becoming increasingly material; and 4) Adjusted for cash, the stock trades at close to a market multiple. He reiterates his Buy rating and $620 price-target.
  • Ross Sandler at RBC Capital expects Google to report modest upside consensus revenue estimate, but it could disappoint on EBITDA margin. He believes Buyside expectation for margin is slightly below the printed consensus, so a negative margin surprise may not have as meaningful an impact as previous quarters if revenue exceeds. Despite the investment phase in 2010, Ross views the stock as a core long-term position in large-cap internet and continues to rate the shares Outperform with a price-target of $600.
  • Wedbush Morgan analyst Lou Kerner is raising his rating on Google to Neutral and increasing his price-target to $575 based on his increasing belief that the secular tailwinds driving ad dollars online will continue to propel Google’s core search business. Coupled with the tailwinds in Android and Google’s strong positioning in mobile, Google is well positioned to tackle the headwinds of Facebook and the “social media tsunami.”

Google Betting On India Wireless Industry (The Wall Street Journal)
Google is pushing to become the leader in India’s wireless industry, which has 670 million mobile phone subscribers and growing at 18 million monthly. The Android operating system in the coming months will be offered on a range of little-known Indian handset makers. Most of the initial Google-powered phones in India from established handset makers such as Motorola and HTC Corp. cost upward of $400, much too expensive in a market where 42% of the population of 1.2 billion people earns less than $1.25 a day.

Google TV Search A Whole New Vertical Search Engine For TV And Entertainment (eWeek)
Clint Boulton at Google Watch is getting excited for Google TV. Why? Google TV Search. Search technology that will index content from the massive ocean of broadcast TV providers’ content as well as anything on the Web (but does not favour the Web for searching purposes). Google now has its own special vertical search engine for TV and entertainment.

Sony Google TV On Sale Today For “Cheap” (Android Guys)
Sony Google TV is about $500 cheaper than originally speculated. It goes on sale today in New York for the bargain price of $1399, down from the rumoured $1899. I’m still not sold that Google TV would be incentive enough to go out and buy a new TV. And at these prices, Google is making Apple look cheap.

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