Google expected to report strong growth

Thursday, January 31, 2008

Google expected to report strong growth
Outlook may be muted, as Web giant refuses to issue financial guidance
By John Letzing, MarketWatch
Last update: 1:12 p.m. EST Jan. 31, 2008
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SAN FRANCISCO (MarketWatch) -- Google Inc. is expected to report double-digit percentage gains in both profit and sales when it posts fiscal fourth-quarter financial results after the markets close Thursday.
Investors nervous about the outlook for technology firms in 2008 will have to look elsewhere, however, as the Web search giant has a long-standing practice of not giving financial guidance for future periods. But analysts will still be able to hear any commentary from Google relating to the online advertising business, given the recent troubles in the U.S. economy.
Analysts polled by Thomson Financial estimate Google (GOOG:
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GOOG 555.61, +7.34, +1.3%) will post earnings of $4.44 a share, on $3.45 billion in revenue. In the same period last year, Google reported earnings of $3.29 a share and $2.23 billion in revenue.
Thomas Weisel analyst Christa Quarles wrote in a note to clients that she doesn't anticipate a slowdown for Google's advertising sales, even if the economy worsens.
"A consumer slowdown could be offset at Google through ongoing [search] query share gains and strong performances from the company's international franchises," Quarles wrote.
Citigroup analyst Mark Mahaney said in his own report that Google remains "one of the best plays off the secular growth in Internet advertising."
Like other tech stocks, Google has sold off sharply in the past three months. The stock has slid 35% since peaking around the $740 mark in early November. It now trades around the $550 mark.
Mahaney maintains a $775 price target on the shares. He notes that Google continues to take a bigger share of the Internet search market, and numerous growth opportunities remain for the company, including video and mobile advertising.
Google's planned acquisition of online advertising company DoubleClick could also dramatically expand its reach, Mahaney wrote, though the deal has not yet been approved by European antitrust regulators.
One area of concern for analysts has been Google's participation in a current government auction of wireless spectrum. A minimum bid of $4.6 billion is required for the portion of spectrum Google is thought to be interested in, called the "C block." That has raised questions about the financial impact of Google's participation, in addition to concerns about what exactly the company would do with any spectrum it might acquire.
Bidding on the C block reached $4.29 billion as of Wednesday, according to Federal Communications Commission data, though the identity of individual bidders is not being publicly disclosed.
"Adding a $4.6 billion spectrum bill would alter [Google's] valuation equation substantially," Quarles wrote. She added, however, that "the Street assumes Google will bid to the reserve price, but won't 'bid to win' the spectrum." End of Story
John Letzing is a MarketWatch reporter based in San Francisco.