360-Degree Review of Google Earnings (GOOG)

Google Inc. (NASDAQ: GOOG) is on deck for earnings this afternoon after the closing bell.  Thomson Reuters has estimates at $6.50 EPS and $4.92 billion in revenues.  Those estimates were just $6.43 EPS and $4.89 billion in revenues over the weekend, and those figures have gradually crept higher higher in recent weeks. As a reminder on the revenues, that is the ex-TAC (traffic acquisition costs).  Google gives no formal guidance for what lies ahead, so the ad rates for what has been so far in January have to be interpolated on top of how much Eric Schmidt says the advertising market is returning to normal.

The potential added revenues from the launch of Droid and the soon to be launch of the Nexus One will be an added juice that has only just started to get factored into analyst expectations for 2010 ad beyond.  This week we have seen that Citigroup said the Nexus One could potentially sell 1 million to 3 million handsets this year for an added revenue base of $500 million to $1.6 billion.  That may be too wide to be of help.  But Citi noted an operating margin of 10% to 15% could contribute $0.12 to $0.55 in incremental earnings per share.

Options are hard to use for an implied expected move because there is almost five weeks worth of time value included in these contracts.  Still, individuals are using speculative puts and calls to get exposure on the cheap.  Even though there are no option strike prices with an open interest of 10,000 contracts, the combined open interest in the speculative CALLS for FEB-2010 is over 50,000 contracts going to an implied 20% upside in the stock.  That is versus about 30,000 or so with the same 20% downside in the PUTS.  If we had t assign an expected ‘up to’ price move in either direction from options traders, we’d say that options traders are braced for a move of up to about $25.00 on the news.

Jim Cramer and several others have been looking for upside in the quarter.  The recent weakness in shares may be to the market, but China acted as the catalyst here and that will likely dominate the conference call Q&A session today.  The average analyst price target here is now up to more than $660.00 on the stock.  That figure has risen rather than contracted.  The issue to watch will be the chart.  The 50-day moving average on the stock was only violated to the downside briefly in July, but that had not been violated until recent trading days.  That figure today is $591.21, so you might as well consider that level as key resistance if the downward market bias continues.  The stocks highest closing bell price has been $590.48 since shares were above $600.00 before January 11.

Google’s 52-week trading range is $282.75 to $629.51.  The fallout can impact many companies, but Yahoo! Inc. (NASDAQ: YHOO) will be the first direct reaction if any major changes are seen and Baidu Inc. (NASDAQ: BIDU) will be the secondary move based upon what gets addressed in China.

JON C. OGG