Google Earnings Sweepstakes: Reader Consensus

The readers have spoken. 

In the last day, approximately 25 Internet Outsider readers have entered the Google Earnings Sweepstakes.  I have eliminated one outlier that seemed preposterous (famous last words) and averaged the rest.  Here's what we've learned:

IO Reader Google Q4 Net Revenue estimate: $1.379 Billion

IO Reader Google "Next Morning Open" prediction: -0.006%

The average Net Revenue estimate calls for sequential growth of 32% and year-over-year growth of 111%.  The 32% sequential growth would modestly exceed last year's sequential growth in this period of 30%.  The year-over-year growth would constitute a modest acceleration from the 109%, 110%, and 108% in the first three quarters of the year.  The IO Reader consensus is in line with the highest Street analyst estimate (per Yahoo! Finance) and 7% above the Street consensus of $1.29 billion.

Interestingly, the average Reader Market Reaction estimate is, essentially, zero (-0.006%).  This means that, in aggregate, IO readers think the market is doing what it is supposed to: appropriately discounting the expected Q4 results.  It also means that the true market (or, at least, reader) expectation for the quarter is $1.379 Billion, not the $1.29 Billion that the Street is formally forecasting.  Of course, Street analysts tend to aim low, especially when they like a stock, so it seems reasonable to assume that the IO Reader expectation is pretty much in line with the real Street expectation.

Which suggests that, all else being equal (which it isn't--we're only talking revenue), if Google does less than $1.379 Billion in net revenue, the stock will drop.  If it does the printed Street consensus of $1.29 Billion, the stock will drop a lot (the word "tank" seems appropriate).  If it does $1.379 Billion or more, the stock will rise.  And if it does $1.45 Billion or more--in line with the higher IO Reader estimates--the stock will skyrocket.

What do I think?  I think the IO Reader consensus is certainly within the realm of reasonable.  If you put a gun to my head and made me play, I would put my estimate around $1.325, slightly above the Street and slightly lower than the IO Reader consensus.  I would expect the stock to drop modestly on that (still remarkable) performance.

Given Google's extraordinary performance thus far in its history, it is certainly possible that the company's growth will accelerate on a year-over-year basis, but there is no way I would be comfortable estimating that.  Even suggesting that the company will be able to MAINTAIN its shocking growth rate is scary.  At some point, gravity--and market saturation--will take hold, and growth will slow dramatically (and take the stock price down with it).  The only question is when.

Reminder: I don't own Google and this blog does not contain investment advice.

Comments

[Chris Fischer]

I'm curious if you redid that survey with people stating their positions (long/short/none.) It seems most of the highball estimates are from people that obviously own the stock..

[Henry Blodget]

There does seem to be a long bias in the estimates. That said, I do think the average is a reasonable approximation of the whisper. Next quarter, I'll ask for disclosure of positions.

[Mal]

Henry-

Great work. Your site has become one of my fav's.

Regards

[mr fuckedgoogle]

I say earnings will be light, and the stock will plunge down to 350 within about 10 seconds of the earnings announcement in afterhours trading.

[phr]

All you doomsday prognosticators should remember that even if goog does just consensus revenues, EPS projections for 06 and 07 will have to go up, as they are based on much slower revenue growth (and ridiculously low margins). If the street comes up to $13-14 post 4Q, your $350 number will mean that a company growing revenues close to 100% with no meaningful deceleration and a 110% ROIC will be trading at 25x 2007 earnings, and that's absurd.

The other point, Henry is that if that 1.379b revenue number is a good one, I'll bet my first born on the over on a flat stock price the next day (exaggerating for effect on the first born, but still).

[mr fuckedgoogle]

No, making a price decision based on 2007 earnings estimates is absurd, considering nobody knows the impact YHOO or MSFT's entry into goog's current text-ad monopoly business will be.

Also, there is something known as "ad burnout" where people begin to "tune out" ads..

Personally, I dont even see adsense ads anymore. Most people started tuning out banner ads around 2000-2001, and the clickthrough rates plummeted 90% or more.

That burnout could happen this year, you never know.

[phr]

it's people like you that juice this stock, my friend. Clearly you have no idea what you're talking about -- since when does goog have a monopoly? Overture/Yahoo has been in this business longer than Google, they invented it.

And when is this ballyhooed "entry" supposed to occur? Did you read the MSFT 10q? MSN is a complete disaster. If that's the big competitive threat that GOOG faces, it's a joke.

Good luck waiting for the ad burnout. . .

[mr fuckedgoogle]

Google has a 100% monopoly with adsense for small publishers. Yahoo and Microsoft don't even allow small websites into their ad program except in a few impossible-to-get-in beta programs.

Well, I shouldn't say 100%.. For all the ads for various frauds and scams (offshore casinos, meet sexy singles now, penis enlargement, valium without a prescription), Adbrite has that market locked up. They take the advertisers that Google refuses.

Other than that, Goog's dominance of the small website industry is total. And that's where GOOG gets nearly half its revenue from. Any attack on that monopoly position will hurt them badly.

[Devin Thorpe]

Henry,

What do you think the impact of a material downward revaluation of Google might be on the tech market in general?

ddt

[Javaflash]

My 2 cents (biased): I believe analysts & press, inside or outside, constantly pounded Google in a quest to seek public attention, almost out of desperation. Take MarketWatch for example. These folks report about Google every other day almost as if they camp outside of 1600 Amphitheatre Pkwy, Mountain View, CA. The general templates of discussion = price too high, price too low, someone else says price too high, someone else says price too low. Repeat.

Could we please have some talks with actual substance? I mean, real investment insights into the technology sector, not some half-baked 24-hour economics, or copycat speculations that change direction every time we blink. Whew!

[alan e]

According to Yahoo Finance, GOOG had revenue of $1.578B for the qtr. How is 32% growth translate to $1.29B billion for this quarter. Negative sequential growth?

[mr fuckedgoogle]

So where do I collect my prize, henry?

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