Entire Internet & Software Sectors Brace For Google Earnings (GOOG, YHOO, MSFT)

After the close of trading this Thursday, we’ll get to see earnings out of Google Inc. (NASDAQ: GOOG). The estimates for the search engine super-giant from First Call are $4.52 EPS on $3.61 billion in revenues.  Next quarter estimates are $4.64 EPS on $3.8 billion in revenues. Estimates for fiscal Dec-2008 are $19.55 EPS on $15.91 billion in revenues.

Analysts have an average price target north of $651.00, although this number has plummeted over the last 60 days as analysts have raced to get to more realistic levels in light of a recession or potential slowdown in ad-spending.   Those old calls for $700, $800, and even $900 Google seem like ancient history.  Over the last 60 days, some of the key firms that have trimmed estimates ahead of earnings or that have gone more cautious for the quarter and into recession are as follows:  Citi, Goldman Sachs, Jefferies, Lehman, Merrill Lynch, Oppenheimer, Piper Jaffray, RBC Capital, Stanford Financial, ThinkEquity, UBS.  So much for that old $750 (or $900) call from Jim Cramer for now.

We won’t make any options pricing assumptions until Thursday afternoon, particularly as options are set to expire the next day.  As of Wednesday’s close, this looked like options traders were braced for a 4% move in either direction.

These moving averages may be slightly different on Thursday afternoon, although these are just the simple moving averages rather than the exponential moving averages.  The chart on Google is one showing that 50-day moving average has been the king and that level as of Wednesday night was $468.36.  That 200-day moving average is $565.90 or more than 100-points higher and seemingly irrelevant today.  Google has been staying closer to its 20-day moving average of late, and that level was $455.21 on last look.

Frankly, Google doesn’t give guidance and management has not said a word about the disappointing numbers on click-thru rates nor on all the other ad metrics.  So far every call has lowered the ad-effectiveness credibility of the ads, but the real results are still somewhat of a mystery because results regarding search and ad-effectiveness vary wildly from source to source.

Yahoo! (NASDAQ: YHOO) was the initial hurdle, but enemy number one at Google is still Microsoft (NASDAQ: MSFT).  Google seems most focused on Microsoft and it is quite possible we’ll hear on Thursday if the company wants to keep things as is and not worry about that potential merger or if they are interested in going back on the offensive.  While traders will send the entire Googlesphere numbers downstream to the second and third tiers, these are the two to watch closest.

Google’s 52-week trading range is $412.11 to $747.24 and shares closed up almost 2% on Wednesday at $455.03.

Jon C. Ogg
April 17, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at [email protected] and he does not own securities in the companies he covers.