So what exactly is Google going to miss ?
My guesstimate for the Wallstreet “whisper” number is $2050M in gross revenues for Q4-2005, that would represent a 30% increase over Q3-2005 (the consensus official estimates are obviously less than this).
I reason that Google will miss that 30% sequential growth since their Q4 search PVs only grew by around 8% from Q3 (src: Comscore). That would mean that their RPS (Revenue Per Search) has to grow by 20%+ during Q4 to bridge the gap between 8% and 30%. I do not think is feasible without significant changes, e.g. more ads above the results, larger descriptions for the ads, or significant increase in CPCs.
In 2004, Google search PVs grew by 14% from Q3 to Q4, and their revenues grew by 28%. So RPS just needed to bridge the gap between 14% and 28%, which is doable; given that they were making lots of monetization improvements at the time. However, its very hard for the RPS this year to close the gap between 8% natural search volume growth and the 30% anticipated by the bulls.
Anyway, on Tues Jan 31st all shall be revealed …
– amr
PS: Thanks to Ken Norton, Silicon Beat, Caterina Fake and John Battelle for the mentions …
Amr. Thanks for sharing your insights which are REALLY intriguing. I don’t doubt your earnings logic (agree they won’t hit 30% increase), but I’m not convinced the stock price reflects that performance level. If it does I hope you have loaded up on GOOG puts.
Comment by Joe Hunkins — January 27, 2006 @ 11:20 amYou first said they would miss Q4 revenue estimates, and now you have changed that to they will miss the highest of revenue estimates. LOL. That is so funny. You would have to be crazy to think google will grow 30% quarter over quarter. That does not mean they will “miss” Q4 revenue. A miss is not defined as not hitting the highest of estimates. Welcome aboard the google bandwagon. I knew you weren’t game enough to say they would miss the average estimates. Stock hits $600 this year.
Comment by Austin — January 27, 2006 @ 11:42 amRegarding the $2.05 bil expected Total Revenues, I’m not sure if that is what’s expected.
If you average the first 3 quarters of growth that is approx 15%, so maybe a 20% increase
for Q4 would be expected. If GOOG maintains the constant 10% cost of rev growth they would
still miss the gross profit projections. However if they hold all other costs constant in
terms of Q/Q increase, they should still be able to hit $520M in net income, or $1.76/shr.
How the street interprets that is where you make, or lose money.
Do you know how much increase in R&D? Maybe we can better figure it out if we knew their
rate of R&D spend. I assume G&A would remain constant, as with Income Tax Expense increasing
proportionally to their income.
Please email and let’s chat, I love analyzing stocks!
Comment by FlyGuy2000 — January 27, 2006 @ 3:06 pmAlexa Traffic data reported the following for Google
Q4 vs Q3;
- PV’per user up 8%
- Reach per million users up 10%
Trying to get a relative comparison for Q2 & Q3 as well
I developed a very rudimentary quarterly search index
[QSI]for both Google vs Yahoo!.
Here’s what I determined:
Yahoo
Q3 QSI +7.1%
Q3 revenue + 6%
Q4 QSI +0.7%
Q4 revenue +13%
Google
Q3 QSI +15%
Q3 revenue +14%
Q4 QSI +18.9%
Q4 revenue +31.2% estimate
QSI tracked well with revenue in Q3 for both Google
and Yahoo. In Q4 Yahoo’s revenue was +13% vs a QSI of
0.7%. Since the QSI does not factor in pricing [CPC]
or overall market growth some combination of these
caused the discrepancy. And, since both these factors
are common to both Google and Yahoo [except for
Google’s relatively new VTB pricing] I suspect that
Google’s Q4 results will also move up proprtionately.
Unfortunately, validating this theory is difficult
Comment by Gabriel Dubois — January 27, 2006 @ 3:08 pmbeyond the most recent quarters since I don’t have
access to previous stats on Reach & PV’s.
I am not an expert in this business, I am merely
a small investor; however, I do have extensive
eductaion and experience in investment.
In my humble opinion, Amr is likley right. Google
is good, but the share price is pricing in an
unrealistic rate of earnings growth for the
foreseeable future.
My prediction is that by the end of June, 2006,
Comment by Mo Chaudhury — January 31, 2006 @ 11:26 amGOOG will settle around $300.
Hi Amr!
Indeed GOOG didn’t perform as the analysts were
expecting in public (privately they might have
known about it).
Your analysis was very informative on why GOOG
will miss the public estimates.
Regards. — MC
Comment by Mo Chaudhury — January 31, 2006 @ 1:31 pmExcellent analysis.
Comment by mela — January 31, 2006 @ 2:41 pmCongratulations! Looks like you nailed it.
Comment by Jessie B — January 31, 2006 @ 3:10 pmWow, nice call on this. You nailed it on the head. Are you sure you don’t work for Google?
Comment by Slim — January 31, 2006 @ 4:58 pmBrilliant!!!!!!!!
Comment by Wil — January 31, 2006 @ 7:02 pm