Sneak Peek: GOOG: Back In China, Back To The Top?

Earnings Estimates (High/Mean/Low): $6.88/ $6.532/ $6.06

Things are finally on the up-and-up again at the Mountain View, CA based world leader in search.  After falling by more 27% since April 15th, shares of Google Inc. (NASDAQ: GOOG) got some good news last week when China announced that it was planning to re-issue GOOG’s license to operate its business on the mainland.  If the company can just put together a solid report this Thursday after the bell, the search giant will be one step closer to regaining its role as a market leader.

GOOG has beaten estimates in nine of the last eleven quarters and the past seven in a row.  It’s worth noting, however, that GOOG rarely beats by more than a few percent, indicating the Street has a pretty good hold on what the company’s going to earn.  Thus, any out-performance following the report will probably have to be the result of positive guidance.

Despite the recent under-performance, expectations still run high.  The Street is expecting EPS of $6.53 on rev of $4.99 billion vs. $5.36 on $4.07 billion for the same Q last year.  Add in some currency risk and gaffs like the Nexus One, and you have to wonder whether GOOG is headed for more pain.

There is some light over the horizon though.  For instance, the online ad market has swung from a 5.8% decline in Q3 last year to a 7.5% gain in Q1’10.  This should create more demand, and thus higher prices, for GOOG’s ad services, which are the unquestioned bread and butter of the company.

A litany of analysts have taken down their target prices on GOOG, mostly while maintaining a buy-rating.  It reflects a general sense that, while shares appear oversold, they no longer seem to have the legs to get back to those lofty levels where they once resided.  This Thursday, we’ll see if they’re right.

Disclosure: No holdings in GOOG.


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