Google Earnings Preview (GOOG, BIDU, YHOO)

On Thursday after the closing bell Google GOOG will be releasing its Q4 earnings results. Wall Street analysts are anticipating that the company will report EPS of $8.09 compared to $6.79 in the year ago period. Revenues are expected to be $6.06 billion compared to last year's corresponding quarter when the company reported revenue of $4.95 billion. Over the last 52 weeks, GOOG has been a laggard, rising only 8.18%. Year-to-date, however, the stock has already gained 5.7%, suggesting traders may be looking for a very strong quarter and upbeat guidance from the Mountain View, California tech bellweather. Last quarter, Google's management broke out some numbers regarding the company's emerging businesses, specifically display advertising, YouTube, and mobile. Senior Vice-President of Product Management Jonathan Rosenberg told analysts that display ads are generating an annualized run-rate of over $2.5 billion. Rosenberg also said that YouTube is now monetizing up to 2 billion views per week, which represents 50% y/y growth. In addition he told investors that the annualized run-rate of mobile was $1 billion. Rosenberg said that "this means that the people who are accessing our products and services through their mobile phones are adding a billion dollars annually to our existing revenue streams." He added that mobile search queries have grown 5 times over the last couple of years and that this is a tremendous growth area for the company. While management explicitly stated that the release of these numbers was a one time event, expect for analysts to try to elicit some commentary on Google's emerging businesses and how they contributed to the bottom line in the quarter. Last quarter, non-GAAP margins came in at 40%, which was flat y/y and a 1% increase q/q. Investors will likely be satisfied if this number remains static. Any kind of margin compression, however, could trigger some selling pressure. Another number likely to be on investors' radar is Traffic Acquisition Costs (TAC), which have been rising on an absolute basis, but falling as a % of revenue. In Q1 2009, the company was spending around $0.29 on TAC for every dollar of revenue. In Q3 2010, however, that number had fallen to $0.257 for every $1 of revenue. Look for this trend to continue in the latest quarter as the company becomes more efficient. Last quarter, expectations were low and the stock jumped more than 10% after a blowout report. Google would have to do something very special to get a similar reaction to their numbers this time around. The sentiment on the Street right now is that the quarter will be very good, but may not be enough to meaningfully move the stock in the near term. Google's valuation remains compelling at current levels. The stock trades at a trailing P/E of 25.53, a forward P/E of 18.63 and a PEG ratio of 1.22. The median Wall Street price target on the stock is $700.00 with a high target of $780.00. Traders should expect some activity in shares of both Baidu.com BIDU, which is China's largest search engine, and Yahoo! YHOO, on the heels of this afternoon's report. Google is a significant part of the Nasdaq 100, and as such, sentiment related to the company's earnings report will likely effect many technology and Nasdaq 100 stocks.