Hey Google Gamblers! Belly Up To Q4 Craps Table

As Google's recent gyrations have illustrated, the stock is now firmly in the thrall of fear and greed.  Down 9% one day.  Up 5% the next.  Up 2% at 10am.  Down 2% at 11am.  "Eighty times free cash flow--We can't take the risk!"  "Biggest opportunity in the history of the world--We can't afford to miss it!"

Making matters more interesting is the stock's apparently frightening valuation.  No investor in his or her right mind would ever pay 60X forward estimated free cash flow for a company this size, so the (sane) bulls must believe that estimates are still too low and that Google will at least double free cash flow this year and grow it another 50%-75% in 2007 (making the real cash flow multiple a more palatable 30X-40X).  Any hint that Google will no longer blow away Street estimates, therefore, and the stock will tank. 

On the other hand, given the hair-trigger panic demonstrated last Friday, there does seem to be some skepticism around.  As Battelle noted, a Yahoo! search employee has predicted a Google Q4 whiff, and his blog has no doubt been extensively scrutinized by bulls and bears alike (presumably contributing to Friday's panic).  So blow the numbers away again, and the stock will pop.

What's the risk/reward profile?  Probably an instantaneous gain or loss of at least 10%-20%.  Is it possible to get enough of an information edge to make the odds of either outcome better than 50/50?  Given that Google is probably the most-analyzed stock in the world right now, I doubt it.  But this presumably won't stop thousands upon thousands from placing their bets.

So in the spirit of entertainment--which, for those who lack material inside information, is all this really is--Internet Outsider hereby inaugurates the first quarterly Google Earnings Sweepstakes. 

As of this writing, the Street consensus net revenue estimate for Google's Q4 is $1.29 Billion.  To enter the Sweepstakes, please post a comment containing:

1) Your Google Q4 Net Revenue estimate, and

2) Your prediction, expressed as a percent, of where the stock will open the next morning (e.g., "+13%" or "-21%").

To increase the entertainment value, please feel free to share some of your logic.

What do you get if you win?  Glory.  A prime posting of your name and winning prediction on Internet Outsider.  Of course, because market forecasting involves two assumptions--1) fundamentals, and 2) market perception of such fundamentals--the Sweepstakes may have two winners.

Good luck!  May the best soothsayer win...

Comments

[Aron]

1.41B. -5%.

[James Nelson]

1) 1,708,460,000

2) 8% gain at open the following day.

I wait my glory.

[Prabhu-Antony Lucas]

1)1.55 Billion

2)Stock opens +7%

[Dude]

1.1 Bn
Down 25%

[Andrew]

I have added some comments about my thoughts about GOOG at the URL above.

Agree very much about gravity having to come into effect at some point.

Theres likely a name for the bias that has us believing us this time it's different. Netscape, Amazon, Yahoo.. It's always different this time! :)

[Theo-wanna-be]

$1.257 Billion
Down 12%

This would represent 20% quarter over quarter growth.

After earnings release it should see a drop to under $400. This will create a wide trading range for 3 to 5 months ($350 to $460).

Will end the year well into the mid $500's as it is evident that this WILL BE THE GOOGLE DECADE.

$500 Billion Market Cap 2009.

[Bob]

sweepstakes:

1. 4Q net revenues: $1.36 Billion

2. % stock to open next morning: + 4.85%

[Mike Jones]

1.327 Billion revenue

down 7.7%

definetly more downside than upside

[TechTrader]

$1.38 Bil
+14%

The secular trends underlying Internet advertising are stronger than people want to believe. Google is a one-trick pony, but that trick will continue to win races for awhile to come. Considering the amount of negative sentiment in the market (including my own), any upside beat will move the stock significantly as the shorts will back out in a hurry. This is eBay in 2002-03 and Apple in 2004-05 all over again ("They sold HOW many iPods?!?").

[alan e]

$1.755B in revenue. Initially the stock goes up then tanks when the street notices that this only a 11% gain over the 4th Qtr of 05 whenm the revenues came in at $1.578B (see 10Q on Edger)

[Henry To]

Hello Henry,

As you know - at some point in one's investing career - one needs to be gutsy and make an unpopular call in order to make outsized returns going forward. Or at the very least, avoid that major loss.

For those who are still investing (speculating) and buying GOOG at these prices, one will need to ask: Are there enough potential GOOG buyers remaining to rally the price to another all-time high, or even to sustain the price at current levels? Certainly, most large cap growth managers have gotten in already (if not, they should be fired from their jobs). Even if Google beats its estimates after the close today, it is doubtful that there will be enough retail investors out there to sustain the price here given that insiders will again be selling the stock en masse starting next week.

Of course, some have mentioned the relative pessimistic views on Google, but given that the open interest put/call ratio of Google is only at the 10th percentile (as indicated by Schaeffer Research) this argument really doesn't hold too much water. Moreover, the history of the stock market suggests that retail investors typically buy a stock on the way down, not up (although this has changed somewhat given the proliferation of IBD as an "investing bubble" over the last 15 years or so). So it is no surprise that many retail investors are still expressing bearish views on this board.

Per Ibottson Associates, the history of the stock market has also shown that large cap growth as a group has underperformed small cap growth, large cap value, and small cap value in the past - especially so against large cap value and small cap value. True, there were exceptions, such as KO and MRK, but while GOOG has most probably cemented itself as the undisputed leader in basic search, it should be noted that the technology is still in its infancy. Could GOOG current foothold prove to be as strong as KO's brand name going forward? While KO definitely has diversified its revenue streams considerably in the last 50 years, the core of KO's earnings remains its syrup of the Coke classic formula. But GOOG is a technology company - and in the technology industry, brand names and leadership have a much shorter half life than consumer brands such as KO, GPS, BMW, and so forth. Google may also be a victim of its quick success, as I bet many "Googlers" are now hatching ideas with the intention of starting their own companies as opposed to "giving it away" to Google. After all, getting Google options at $400 a share is no longer as attractive as getting them for, say, $1 or $10 a share. While the life of the company is short, Google now already resembles more of a bloated company than a Silicon Valley startup.

Given the surprisingly slow fourth quarter GDP number, and given dismal earnings and guidance from the world's biggest companies (such as GE, INTC, MSFT, and so forth), it is my guess that Google will disappoint - whether it is with their fourth quarter earnings report or guidance going forward. There is some support at $400 a share, so my guess would be for the stock to at least go down to that level in the after-hours market after the earnings report - and for the stock to continue to underperform the market going forward (unless the stock is added to the S&P 500 Index).

Best of luck to everyone on this board,

Henry

http://www.marketthoughts.com

[Theo-wanna-be]

Further comment with regard to the $500 Billion Market Cap in 2009.

Gross Revenues for Google in 2005 are estimated to be in the $6.5 Billion Range. At a compounded annual revenue growth rate of 55% for the next four years (less than half its growth rate of the last two years) one can see that they would have approximately $37 Billion Billion in revenues in 2009. A price to sales ratio of 14 (Currently P/S is 20) at that time would provide a $500 + Billion Market Cap.

NOT out of the realm of possibilities.

For now it looks like DOWN is the next move for this stock!

Good Luck to all!

BULL Long Term.

[Ashuko]

1.43B
7.2%

[Zec]

1. net revenue : $ 1.310 billion
2. - 12 %

General conclusion:
- market share goes up
- guidance for the future goes down
- click-fraud discussion/conversation becomes louder

[John Brosco]

Stock tanks now SEC begins investigations of Pumper Analyst and CNBC talking heads.

Larry and Serge are the smartest guys in the room. They sold all the way up to the top to the tune of about $70,000,000.00 a week on average since going public.

[Still a Believer]

My husband and I still believe there is more to Google than meets the investor's eye.....we are just surprised at the people who bail when Wall Street expectations are not met. But that's why we love Google: they hate Wall Street as much as we do.

[Still a Believer]

My husband and I still believe there is more to Google than meets the investor's eye.....we are just surprised at the people who bail when Wall Street expectations are not met. But that's why we love Google: they hate Wall Street as much as we do.