Earnings Preview: Google Q1 On Tap

This story was written by Joseph Weisenthal.
Do you know what tomorrow is? Yep, it's the day folks can stop trying to divine the meaning of life from every scrap of Google-related data that comes out. Instead, everyone can argue about the meaning of a big pile of data in the form of an actual earnings report. Last quarter, Google's (NSDQ: GOOG) results were weak, and since then there's been a flood of data on paid clicks, which have been decelerating rapidly. The question is whether that's been counterbalanced by an acceleration in price per click. For March, the latest comScore (NSDQ: SCOR) data showed an anemic 2.7 percent increase in paid clicks, basically continuing the trend we've seen all quarter. So far there's been no consensus on what any of this meansthe bulls see quality initiatives, while others see a scary, macro-driven trendhopefully tomorrow brings some clarity. EPS expectations, according to Thomson (NYSE: TOC) (via Forbes.com) are for the company to earn $4.52 per share on revenue of $3.61 billion. In anticipation, analysts have been busily scribbling out their preview cards:

Doug Anmuth, Lehman: The decline in paid click growth can be chalked up to decreased coverage ratio, associated with improved quality initiatives. Overall, the latest data for March doesn't move the needle much in terms of expectations for the quarter. Anmuth is calling for revenue of $3.58 billion in the quarter,and EPS of $4.46. He also notes that paid click growth actually declined for others in the space, suggesting some macroeconomic concerns.

Ben Schachter, UBS: "As far as a read-through into GOOG's 1Q'08 results (slated for release on Thursday after-market), tonight's data indicates that 1Q'08 paid click volumes are up a tepid 2% y/y (and down 9% q/q), which if correct, suggests the company would need to have implemented significant monetization improvements during the quarter in order to meet consensus estimates. Google may have made some pricing improvements, but we don't believe they will be enough." Along with Google, Schachter notes that comScore is also under the gun: "Bottom line is that we think the overall trends reflected in comScore are accurate, but comScore data itself is difficult to use for specific modeling purposes. We will know more about the accuracy of comScore as a predictor when GOOG reports 1Q results on Thursday."

Ross Sandler, RBC: Some are expecting strong growth internationally to rescue Google if the US underperforms. After querying various European search engine marketers and ad networks, Sandler is predicting 52 percent international growth in the quarter, though he notes there could be a drop off in the second half. In the UK, a recent Google decision to allow bidding on trademarked terms could be evidence of market maturation, as it looks for new pedals to push.

Jeff Lindsay, Bernstein: "Google's current paid click deceleration is not unprecedented - a significant advertiser purge happened around June 2007. On that occasion paid click growth also went down by a similar amount, but the revenue per search went up by more than that decrease in Q307.  We are assuming that a similar thing is happening now, but there is a risk that we may be too optimistic on timing because it may take longer for prices to improve in the current macro environment than it did last year." Lindsay also points out that international data, not covered by comScore, is a big wild card.


By Joseph Weisenthal
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