Analyst Previews Google's Q4 Earnings; Reiterates Buy (GOOG)

An analyst from Broadpoint.AmTech is out with a research note today previewing Google's (Nasdaq: GOOG) Q4 earnings, which are expected out tomorrow, January 22nd, after the market close. The firm believes Google will report "in-line to marginally better than consensus expectations". The analyst reiterated his Buy rating and $400 price target.

The firm believes key points to watch for during tomorrow's report include:

• a conference call format - Google is breaking up its report into 1 part with senior management as customary, and another part for Q&A with the CFO and several other investor relations members.
  
• expense controls - Google has slowed its rate of new hires "meaningfully" over the last few quarters. Given the macro environment, Broadpoint.AmTech is forecasting a slight decline in operating margin on a year-over-year basis, but believes that "there may be some possibility of an upside surprise here."
  
• health of international markets - as visibility into markets outside the US is somewhat harder to predict, the firm is anxious to see the impact of a spreading global recession on eCommerce spending. AmTech is forecasting Q4 sales growth of 21%, down from 40% in Q3.
  
• foreign exchange impact and effectiveness of hedges - the analyst notes Google's "significant exposure to currency fluctuations."
  
• the rate of traffic acquisition cost - TAC rate, or revenue share to search affiliates and other partners, historically drops in Q3, but bounces in Q4, according to AmTech. The firm sees 79.5% to the Google network and 5% to Google sites. Broadpoint.AmTech said, "Blended this is a ~145bp bounce unfavorable to GOOG, compared to a ~115bps last year. Every 25bps in TAC is about $0.03 per share all else equal."

AmTech believes Google "is not immune to gale-force macro headwinds", but "should, however, be one of the more resilient companies given the high-ROI nature of search advertising and GOOG’s dominance." The firm sees concerns about Google's '09 lingering, but calls Google a "must-own for the long-term" and sees limited downside from current levels.

Following yesterday's 5.6% sell-off, shares of Google are bouncing about 4% today. The stock most recently traded at $294.12.

Google, Inc., a technology company, maintains index of Web sites and other online content for users, advertisers, Google network members, and other content providers.

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