Analysts Shave Google Estimates Ahead of Earnings Call
Financial analysts are taking a dim view of Google's third-quarter earnings announcement for Oct. 16, a day that could set the tone for Internet stocks that are already taking a beating.
Shares of Google spiraled to $345 and change Tuesday, but that lamentation proved premature: Google is trading at around $315 as I write this after closing at $328.98 last night.
That means that in 11 months, Google's stock has lost more than half of its valuation. Last November we wondered whether Google would plateau at $1,000. Today, we are forced to wonder how low Google can go.
In come the financial analysts, issuing reports of dread for Google and other Internet companies. Citi Investment Research said it expects Google to report $4.47 billion in net revenue and $4.77 in non-GAAP EPS compared with consensus expectations of $4 76 billion and EPS of $4.81.
Citi also reduced its 2009 net revenue estimate for Google by 4 percent to $18.7 billion and 2009 EPS by 4 percent to $22.85.
However, Citi reiterated its buy rating on the Internet giant along with a big $590 price target, thanks to the long-term risk-reward on Google shares as highly attractive at current levels.
Eric Savitz of Tech Trader Daily notes even more conservative estimates by noted analysts this week.
RBC Capital's Ross Sandler cut his price target to $500 from $600. For 2008, his EPS estimate is now $19.14, down from $19.45; for 2009 he now sees $21.24, down from $23.46. Bernstein Research analyst Jeffrey Lindsay cut his target to $560 from $660, lowering his estimates to $18.68 from $19.03 for this year, and to $21.09 from $22.68 for 2009.
Citi's Mark Mahaney said he'll be listening on Google's Q3 call for qualitative updates on trends in paid search, as well as any comments from management on the relationship between paid search and the economy.
Judging from last quarter's call and recent "what me worry" comments about the economy relative to Google, I expect Google CEO Eric Schmidt to maintain his "It's Always Sunny in Silicon Valley" mien.
But he could surprise us all by adding a cautionary note about a hiring freeze or some such conservative measure. It's probably too soon, but I expect more conservative actions from Google in the fourth quarter in early 2009.