Derek Brown, Internet analyst for Pacific Growth Equities, analyses Google's (ticker: GOOG) Q2 earnings results; key extracts:
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Outstanding Q2 Results; Raising Estimates Materially; Reiterate Over Weight Rating
- Outstanding Q2 results, with net revs/EBITDA/EPS of $891M/$590M/$1.36 vs. our ests of $822/$540M/$1.18 and consensus of $842M/$555M/$1.21
- Raising net rev/EBITDA/EPS ests materially to $3.71B/$2.43B/$5.37 in 2005 and to $5.49B/$3.44B/$7.44 in 2006
- We reiterate our Over Weight rating and strongly encourage investors to establish/add-to position.
VALUATION AND RECOMMENDATION
Google currently trades at a 2006 EV/EBITDA ratio of 25x our estimate of $3.44B and a P/E ratio of 42x our estimate of $7.44. Given the Company’s recent history of extraordinary execution, projected 3-year growth rate of 40–50%, and prospects for operational outperformance, we think these represent attractive multiples, particularly relative to other leading Internet franchises. While we recognize possible risks and challenges tied to competition and growth management, among other issues, we continue to see a favorable risk/reward profile for Google at current levels and reiterate our Over Weight rating on Google’s shares.
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