14 July, 2007

Google Estimates and Analyst thoughts

Google (GOOG) price targets have been raised by analysts for years since the company became public. Simply the street can not get a grip on the type of growth that the advertising sector is experiencing on the internet. And they don't seem to understand just how good and efficient Google is at spreading its internet reach. The notion of large advertising accounts is a typical stance that any analysis takes, however Google is so effective at the "small business" crowd, and those 1000s of companies, spending small dollars certainly add up, especially overseas. Google doesn't give any guidance so clearly the traders, bankers and analysts are left scrambling for "best-guesses". One conference call, Eric Schmidt said that he thought Google could one day become at 100billion yearly revenue company. Now that's a lofty goal but with their global expansion and diversification into other revenue streams it sure seems possible. As for the current earnings, which are to be announcement this coming Thursday, it's once again best guess and a race for each analyst to go above the other analyst. A quick look at the pattern for the consensus revenue expectations over the last 3 months shows this leap-frogging. The expectations are raised constantly, yet Google still manages to beat them. Google's international business is making up a bigger portion of revenue every quarter and this trend should continue in this quarter. With the strong overseas currencies and weak US dollar the international numbers are inflated when brought back in USD terms, thus creating a larger EPS than otherwise would have been.

There may very well be some profit taking prior to the earnings announcement, but expect (as most do) for Google to blow the doors off another stellar growth quarter. While any dip would represent a great buying opportunity as long term Google has it sites set on being the largest technology company in the world. And that means an even larger market cap than the company enjoys right now, which is something investors can sleep comfortably thinking about.

Disclosure: Author is long GOOG

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