Its a Very Bright Future for Google

Google Analysis & Price Target

The day has finally arrived.  Later this afternoon Google will report first quarter results for the three months ended March 31, 2010.  There are four items that I will be paying close attention to:

1)      Q1 Revenue:  My estimates show overall revenue of $6.97 Bil with $1.81 Bil of Traffic Acquisition Costs (“TAC”), leaving a net revenue figure of $5.16 Bil. 

2)      Q1 EPS:  I’ll be looking for EPS at $6.61 versus The Street’s estimates a week ago of $6.56. 

3)      Provision for Income Taxes:  While on the surface this may not seem like a very important figure, I can attest to the fact that it is a rather difficult number to estimate.  I’m expecting it to come in at $0.628 Bil.

4)      Handset Performance:  I’ll be reading Management’s Discussion & Analysis (“MD&A”) and listening to the Conference Call to get a better idea of how well Google’s handset business is coming along.  I’m expecting this area of operation to rapidly advance over the next couple of years.  This could really change the dynamic of the company and have a powerful effect on future earnings. 

Tomorrow evening I’ll be posting a summary of Google’s quarterly results with a brief analysis of their overall performance.  Also, if today’s results differ from my estimates, I’ll input the new data into the models and post any revisions that may occur.

Price Target!

1 Year Target  =  $730.97

The Street currently has an average 1-year price target on Google’s stock at $670.68, with a range of $536 to $810.  In reaching the target of $730.97, I first needed to find the stock’s multiple.  I took the current trading price of $589 and divided it by the sum of the last three quarterly EPS numbers and my current Q1 estimate of $6.61.  This gave me a Price-to-Earnings ratio of 25.94.  The next step involved estimating all four quarterly EPS figures for 2010 (Q1-Q4) to arrive at total forward-year earnings of $28.18/share.  Multiplying the multiple of 25.94 by the 2010 earnings estimate of $28.18/share yielded the price target of $730.97.        

Recommended Position

As a result of the following four important business and systematic factors, I am initiating a BUY rating on Google’s stock:

1)      Economic expansion is currently underway all across the world.

2)      Google is lowering its operating expenses, thereby increasing its operating efficiency.

3)      Google is transitioning into higher margin industries, like the Smartphone market, thereby lessening its dependence on online advertising.

4)      Zero debt and $25 Bil in cash and marketable securities leaves the door wide open for big acquisitions in the near-future. 

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.