It's that time of the quarter again--time for the Google Quarterly Earnings Sweepstakes. For the last two quarters, the IO reader consensus has been more accurate than the Street consensus, as well as a better reflection of what the Street's real expectations have been. So here we go again...
As in the past, please submit your Q2 estimates for:
1) Net Revenue (revenue after deducting traffic acquisition costs)
2) The price at which the stock will open the following morning.
3) Your logic.
You may update your estimates based on earnings from Yahoo, etc., until 4pm on Thursday, July 20. The winner will get his or her name in lights (on this blog) the following morning.
All things considered, this quarter has been a yawner for Google watchers. No Three-Alarm-George comments knocking the stock down 20% in 20 minutes, no 5% appreciation per day, no massive announcements, no huge controversies, and...no new high. I believe, in fact, that this is the first quarter in the company's public market history in which the stock has not hit a new high. The stock has yet to really recover from the "earnings miss" in early January (which wasn't really a miss), and, since then, a few thousand hedge funds have moved on to more exciting pastures. Still, if the company blows out its numbers this quarter, all will be forgotten and forgiven.
Several analysts have issued earnings previews, with some suggesting that Google will crush its numbers and others being more cautious. Safa's hanging in there with his $600 target and predictions of a blow-out. Perma-bear Jordan Rohan is warning investors not to get carried away. So, it's time to get your own voices into the game.
My thinking:
Net Revenue: The current Street consensus is about $1.6 billion, up 80% y/y, with a range of $1.45 (up 63%) to $1.68 (up 89%). Even the highest estimate represents a continued deceleration of the y/y growth in Q1 (93%) and Q4 (97%), which is reasonable. A deceleration to 63% (1.45B) would be an unmitigated disaster. Even a deceleration to the purported consensus, $1.6B (+80%) would probably be a disappointment.
Stock Price: Having held essentially flat for six months, the stock is gradually becoming less expensive, at least on an earnings basis. As previously described, however, my free cash flow estimate has not budged in a year (bad news, given the huge revenue growth), and the stock is now trading at about 40x-50x a 2006 free cash flow estimate of $2.5B to $3B. This is a vast improvement over the 70x-80x multiple when the stock neared $500, but it's still hefty. So there's still no room for error.
So my own entries in the sweepstakes are:
Net Revenue: $1.66 Billion, up 86%. I haven't seen any changes in trends that lead me to expect the company's growth to hit a wall, and some of the Comscore query numbers suggest that Google rate of share gain is increasing. Similarly, however, I haven't seen anything that makes me think the company will shock everyone on the upside. Those days, I think, are gone.
Stock Price: $420 The stock's still expensive, the broader market is weak, a $1.66 billion number would qualify as strong but not spectacular, and I see no reason for the multiple to expand. Also, Google has now posted about 20 quarters in a row without a real stumble, and each strong quarter brings us one quarter closer to that inevitable day when even the best companies screw up.
Look forward to reading your thoughts...
Net Revenue: $1.72 Billion, up 93%, maintaining the same growth trajectory as Q1.
Stock Price: $450
Posted by: G Poppa | July 20, 2006 at 01:10 PM
1.625 Revenue.
Stock tanks and opens at 365.
This will happen because I have put all my eggs in one basket in a lame attempt to turn $1000 into $1,000,000 in a year or less.
Posted by: jake wolf | July 20, 2006 at 03:39 PM
Google beats by $0.27, beats on revs : Reports Q2 (Jun) earnings of $2.49 per share, excluding non-recurring items and stock based compensation, $0.27 better than the Reuters Estimates consensus of $2.22; revenues including Traffic Acq Costs rose 77.4% year/year to $2.46 bln vs the $2.4 bln consensus. Revs excluding TAC came in at $1.67 bln vs $1.65 bln First Call consensus.
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