Y/Y quarterly revenue growth of 79% ($2.253B/$1.256B), operating income growth of 67% ($742M/$443M), net income growth of 60% ($592M/$369M). That growth justifies an operating P/E something like double the market multiple. Annualizing current operating earnings, and diluting their share base forward gives a conservative forward operating EPS of $9.21 ($742Mx4/304Mx1.06) and at a current share price of ca. $450 that gives a forward operating P/E of 48 ($450/$9.21), which is just about right. Doing the same calculation but using net earnings gives them a forward P/E of 61.
On the other hand, if we use the last Y/Y growth rates to project operating and net earnings, and assume completely linear growth, that gives them a forward operating P/E of 46.8 ($450/($742Mx1.67x(1/4+2/4+3/4+4/4)/(304Mx1.06))) and a forward net P/E of 61 ($450/($592Mx1.60x(10/4)/(304Mx1.06))) -- again just about right. They are neither over nor under-valued by these measure.
They plan increased capital expenditures, but also increased and improved product rollouts, so those compensating effects do not sway the estimate one way or the other.
Google Inc. Q1 2006 Earnings Conference Call Transcript Sell-side Reaction to Google earnings: Scott Devitt and Mark Mahaney