Internet search giant, Google Inc. (GOOG) is scheduled to report its third quarter 2009 results after the market closes on Thursday, October 15. Expectations for the company are extremely high. Google may not have trouble beating the street in this exuberant third quarter earnings season. However, coming on the heels of Intel's (INTC) earnings beat yesterday, Google may not meet investor’s lofty expectations for a super blow out earnings number.
Consensus estimates are for Google to post per share profits of $5.40 on revenues of $4.23 billion, a large jump from $4.92 earnings per share for the same quarter one year ago. Google stock hit a 52-week intraday high today of $535.58 on expectations of a much better performance than analysts predict. Google’s share price has been moving well above both the 50-day and 200-day moving averages since mid-July. The share price closed today at $535.32.
Google’s share price has outperformed the Nasdaq 100 Index ETF (QQQQ ETF) 74 to 45 percent year-to-date and is up 85 percent since the March 9 market low. Google’s market cap is $169.5 billion.
Google still makes 97 percent of its money from online ads despite high profile expansion into applications and telecommunications markets. The online advertising market shows signs of recovering after a brutal economic downturn. Economic recovery is what many investors are looking at in bidding up Google's share price. A weaker U.S. dollar should boost Google’s earnings as well. More than half of Google's revenue comes from outside the United States. Investors are also expecting cost center YouTube to soon be a profit center.
Google is very confident in its future. Chief Executive Eric Schmidt declared last week that the worst of the recession is now over. Schmidt declared advertisers are expected to increase online spending in the next few months. He also says Google will be hiring. Analysts are forecasting that Google’s earnings and share price will climb higher over the next few quarters and assume Schmidt is correct in his projections.
Challenges from Microsoft (MSFT) to Google's dominance in the internet search business creates little competition for Google in the near term. In June, Microsoft renamed their search engine "Bing." The Bing challenge is muted thus far. Google still dominates the search engine market with 70 percent of market share compared to 16 percent for Yahoo Inc. (YHOO) and 9 percent for Microsoft.
A more interesting challenge is Microsoft's deal with Yahoo Inc., to use Microsoft’s technology to process search requests and manage search advertising on Yahoo’s U.S. web site. The deal still has to pass regulatory review in the United States. Google is answering this deal with the development of a computer-operating system of their own designed to compete against Microsoft'Windows.
Since the beginning of the year, Google's shares have climbed about 58 percent. In 2008, Google’s shares dropped nearly 56 percent compared to a 38 percent decline in the Standard & Poor's 500 index.
Google's shares are now trading at 21 times consensus 2010 EPS estimates, below valuations of other companies in the search engine industry. As the leading online advertiser, Google's share price should continue to rise over the next 12 months. The company could even reach the $700 a share level if the global economy gains sufficient strength toward the end of 2010.
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