Profiting from Google GOOG

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For those that might fancy this kind of trade [Pairs trade];

Google shares are up 22% for the year and 26% for the third quarter. That's in stark contrast to the company's closest competitor, Yahoo!,which is down more than 30% on the year.

Short GOOG & long YHOO.


jog on
d998

 

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Google will report its 4Q earnings this Wednesday (Jan 31).

Google expected to report an 88% profit gain

By Ben Charny, MarketWatch
Last Update: 10:08 PM ET Jan 25, 2007

SAN FRANCSICO (MarketWatch) -- Google Inc. is expected to report a big jump in fourth-quarter profit on Wednesday, on the strength of its dominating Internet search engine and advertising business.

For the period ended Dec. 6, Google's expected to post a profit of $2.90 a share, which is an 88% increase from a year ago. Meanwhile, Google sales should top $2.2 billion, according to a Thomson Financial survey.

Google, based in Mountain View, Calif., is benefiting from a surge in the amount of Internet advertising spending, which increased about 20% last year to more than $20 billion.

Because it operates the No. 1 ranked Internet search engine, Google has also become a virtual magnet for spending on Internet search ads, which are text ads, or sponsored Web links, that appear next to its search engine results.

According to several estimates, Google's share of the Internet search market grew beyond 45% in December, which is nearly twice the market share of Yahoo Inc.'s No. 2 Internet search engine, and four times that of other top five ranked engines.

There's also growing analyst consensus that Google may exceed expectations on Wednesday, having done so during all but one of its quarters since going public.

That's especially so for its just concluded fourth-quarter, given how Yahoo, which had a tumultuous quarter that included an executive shake-up, was able to report a 13% gain in its advertising sales earlier this week. By comparison, Google's fourth-quarter was smooth sailing.

"All boat's are being lifted," Global Equity Research analyst Trip Chowdhry said in an interview. "If Yahoo can report a 13% gain in sales, then imagine what Google's going to do."

http://www.marketwatch.com/news/sto...x?guid={78831A08-6A39-494B-863B-D65903BF78E2}

 

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Tonight's the night - Google reports an eagerly awaited 4Q earnings after the market closes (so there's still time to get on board! ). The average forecast is for EPS of $2.91 on revenue of $2.19 billion. If Google beats this, watch as Google flies past $500 tomorrow night. Otherwise, it'll be similar to this time last year, when dissapointing 2005 4Q results saw the sp plunge from about $467 to $400 in just three days. (I hold and would hate for the latter to happen)

Excerpt from newsletter Earnings Whisper on Monday 29 Jan:

That leaves us with this week's earnings, and the most watched company
will be Google (GOOG). Google is one of the most talked about growth
stories of 2006, but is only up about 15% since it reported earnings
this time last year - the same as the Dow Jones Industrial Average.

What is interesting to us is the company's 2007 earnings estimates
have also increased by 15% since the company reported earnings in
January 2006 and, while the stock has typically traded around 41 times
forward earnings estimates, it is currently trading at just 39 times
2007 estimates. In addition, most analysts have raised their target
price by about 35% or more throughout the year. So, the stock, by some
metrics, is undervalued.

The problem is Google grew earnings by 89.5% in 2005 and current
estimates suggest 78.9% earnings growth in 2006, including stock-
option expense and this clearly isn't sustainable. No one wants to be
holding a $500 stock trading at 63 times trailing earnings when it is
realized that growth is slowing.

This fear has created some built-up tension in the stock ahead of the
company's earnings release and our analysis of the implied volatility
of Google's option prices suggests a tremendous price swing will
follow the release.

The stock appears to have some technical resistance at $513, which is
the high set on January 16, 2007, but if the company beats earnings,
there seems to be no reason why the stock can't trade above $530 based
on current earnings estimates and expected growth rate.

There seems to be little doubt that this will happen. Youssef Squali
at Jefferies & Co. said that Google should beat estimates; Safa
Rashtchy at Piper Jaffray said he expects the company to beat revenue
estimates; Steven Weinstein at Pacific Crest Securities said he
believes the company could beat his above-consensus earnings and
revenue estimates; and Justin Post at Merrill Lynch said their channel
checks suggest Google had a "robust" fourth quarter with strong
eCommerce activity and market share gains, which should result in an
upside revenue surprise of $20 million to $60 million.

We have not changed our Earnings Whisper ® number of $3.05 per share
since we established it a couple of weeks ago, but since then the
consensus earnings estimate has ticked up a penny to $2.91 primarily
due to Clayton Moran at Stanford Financial Group who raised his
estimate $0.20 per share on January 22, 2007 to be inline with the
Earnings Whisper ® number. The consensus revenue estimate is $2.19
billion, but we believe anything below $2.25 billion will likely be a
disappointment and believe $2.30 billion or more is the real
expectation.