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By: Brendan Gilmartin, VP Research And Content

Google (NASDAQ:GOOG) is scheduled to report 1Q earnings after the close of trading on Thursday, April 18. Results are usually available in the minutes after the closing bell with a conference call slated to get underway at 4:30 p.m. EST. The S&P E-Mini, NASDAQ 100 E-Mini futures contracts and PowerShares QQQ (NASDAQ:QQQ) (Google is 3rd biggest holding in the QQQ) tend to see active trading off the results.

Outliers And Strategy

Google is expected to earn $10.69 per share (on a Non-GAAP basis) on revenue (ex-TAC) of $14.04 bln. The high estimates on the Street are $12.20 per share and $15.12 bln, respectively (Source: Yahoo Finance). Given the magnitude of the run-up in Google shares, look for earnings at the high end of this range in order to sustain the advance.

The options market is currently pricing in a 5.77% move in Google shares following Thursday's earnings release.

Recent News

  • 04/16: Google Executive Chairman Eric Schmidt told attendees at the AllThingsD "D: Dive into Mobile" event that approximately 1.5 mln Android-based mobile devices are being updated daily.
  • 04/02: UBS initiated coverage on Google with a Buy rating and a price target of $950, according to a post on StreetInsider.com. The firm cited several factors, including a solid management team, valuation, and leading position on the Internet.
  • 03/27: Stifel Nicolaus reportedly suggested that Google could possibly miss estimates when it reports earnings, according to a post on StreetInsider.com. The firm believes search spending fell 1% y/y and carries a Hold rating on the shares.
  • 03/05: Jefferies reiterated a Buy rating on shares of Google and raised the price target from $875 to $1,000, according to a report on Barron's Online. The positive outlook was based on ad volume at YouTube, increased cost-per-click rates on mobile phones and tablets, and improving products from the Motorola division.

Technical Review

Google shares are off a mere 6.00% from the 52-week high of $844.00 established in early March, following a report from Jefferies, whereby the firm raised the price target to $1,000 per share. Since then, the longer-term rally has faded, with the momentum oscillators coming off the overbought readings established six weeks earlier. Near-term, $800 (50-Day SMA) is a key level. Should results come in well above the elevated Street views, Google could easily recapture the aforementioned 52-week high. Conversely, support is at $760, with downside risk to $740 should earnings surprise to the downside. (Chart courtesy of StockCharts.com)

Summary

Google shares recently broke out to an all-time high, benefiting from its aggressive expansion in mobile, its dominant position in search, increasing ad revenues thanks to an improving economy, growth in the YouTube segment, and valuation. Google is currently trading at 24.4x earnings, just a slight premium to the 5-year average (23.9x). Given this positive backdrop, Google needs to deliver stellar results for the first quarter in order to recapture the 52-week high of $844 established early last month. The current estimate for Non-GAAP EPS is $10.69 per share with a high number on the Street at $12.20. In order to push the shares higher, earnings need to come in at the high end of analyst forecasts (>$12.00/share).

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Source: Google Must Deliver On Earnings To Recapture March High