Q1 Earnings Estimates for Google

GOOGLE Q1 Earnings Estimates

*EPS and Revenue were slightly revised on April 11

**Google will be reporting first quarter 2010 earnings after the closing bell on April 15^th**

Alright folks, here are the long-awaited first quarter earnings estimates for Google…

Q1 Revenue:  $5.16 Bil

Q1 Basic EPS:  $6.61

Income Statement
Three Months Ended March 31, 2010
Revenue	$6,974,482
Costs:
TAC	$1,813,365	$5,161,117
Cost of Revenue	$710,042
Gross Margin	$4,451,075
Operating Expenses:
R&D	$743,586
S&M	$606,624
G&A	$476,869
Total	$1,827,079
Income from Operations	$2,623,996
Investment Income	$105,936
Income before Taxes	$2,729,932
Provision for Income Taxes	$627,794
Net Income	$2,102,138
Shares Outstanding	$318,032
Basic EPS	$6.61

As you can see from the above Income Statement, there is an overall revenue forecast of $6.97 Bil for the first quarter.  The accuracy table below summarizes the results of five particular regression models constructed to predict last quarter’s (Q4) overall revenue figure of $6.67 Bil.  First-order regression seemed to fit the sample data with relative precision; therefore, it was used to construct Q1’s overall revenue estimate. 

Accuracy
Model	Prediction	Percent Err.	W/ St. Err.	Percent Err.	R^2	Ad R^2
First-Order	$6,688,053	-0.2%	$6,998,433	-4.9%	96.7%	96.5%
Exponential	$5,965,543	10.6%	-	-	92.5%	-
Deasonal	$6,786,317	-1.7%	$7,132,136	-6.9%	95.9%	95.6%
Dummy	$6,819,703	-2.2%	$7,146,154	-7.1%	97.0%	96.1%
Lagged	$6,789,600	-1.7%	$7,130,050	-6.8%	94.0%	93.0%
		Actual Dec-2009 Sales
		$6,673,800

In order to arrive at the Traffic Acquisition Cost (“TAC”) figure, a combination of both regression and common-size analysis was used.  Estimated Q1 TAC represents 26% of estimated revenue.  This is in comparison to 25.8% of last quarter’s revenue.  The quarter-over-quarter deterioration is very minimal and is mostly a reflection of more revenue share being paid to Google Network members. 

           

Once TAC is netted against overall revenue, we arrive at the publicized revenue estimate of $5.16 Bil.  Current street consensus is for a netted revenue figure of $4.93 Bil, or 4.7% below my estimate. 

As we progress further down the income statement, we see investment income continuing to increase quarter-over-quarter from $87.7 mil to 105.9 mil.  This improvement is mostly attributable to fewer costs associated with Google’s foreign exchange hedging activities.  

Provision for Income taxes continues to be a difficult figure to predict, even for Google.  What we saw in 2007 an effective income tax of 25.9%, 27.8% in 2008, and 22.2% in 2009.  What the income statement above shows, is an effective rate of 23.0% for Q1 of 2010.  This is primarily a result of increases in federal and state income taxes, driven by higher taxable income. 

Lastly, we arrive at the Q1 EPS estimate.  Analysts, on average, are predicting basic EPS to come in at $6.56, or 0.76% less than the above estimate of $6.61.  This is not much of a surprise relative to an average EPS surprise of 4.56% over the past four quarters.

Over the next week, I will try to post Google’s Q2 guidance estimates, so be sure to check back often. 

Also, don’t forget to click the “FOLLOW” button to the left of this post for further analysis of all of your favorite stocks throughout the year!

GOOGLE Ownership

Author:   NO

Author’s Family:  NO

Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.