Google Shares Seem To Be Pricing In Bad News - Barclays

Concerns about Google Inc.’s (GOOG) fourth quarter and 2009 numbers may be warranted given the economic slowdown impacting both its customers and consumers, but the damage to its share price may not be.

Google traded below $250 per share in the past week, down from a 52-week high of $724.80. At its recent low, which equates to 12 times estimated 2009 earnings per share, much of the bad news is already being taken into account, said Barclays Capital analyst Douglas Anmuth.

He told clients that Google’s business model is fundamentally intact and the company is well-positioned to continue to take share of advertising dollars due to the performance-based nature of search.

Mr. Anmuth feels that Google’s consensus numbers for the fourth quarter are too high with net revenues expected to rise 5.2% quarter-over-quarter. An earnings per share forecast of $22.25 in 2009 may also be too lofty as the stock appears to be anticipating a significant disappointment.

Conversion rates and spending by search engine marketers may be showing early signs of picking up in recent weeks, the analyst noted. October data from comScore released on Monday showed that Google’s queries rose 30% year-over year, which is roughly in line with recent trends. Its shares of the U.S. market climbed 20 basis points on a monthly basis to 63.1%. Mr. Anmuth said the results are solid overall but the commercial nature of both queries and conversion rates make them unclear.

He maintained his forecast for fourth quarter net revenue to be flat on a quarterly basis and for earnings per share to come in at US$20.74 in 2009. The analyst’s price target for Google is $490.