Google Inc (NASDAQ:GOOG) is set to announce its Q2 results on July 18. While Q2 saw a flurry of activity as Google Inc (NASDAQ:GOOG) announced new versions of Google Maps and Google+ as well as some acquisitions, Google’s core search ads growth will be in focus once again in the Q2 earnings announcement.


Mixed 2Q13 paid search trends

According to Wedbush Securities, their checks and industry data points suggest mixed 2Q 13 paid search trends. Specifically, their SEM checks indicated that overall paid search spend decelerated from 1Q 13 and noted slower spend growth on Google Inc (NASDAQ:GOOG). While it is still early days for Enhanced Campaigns, their checks generally expect to see CPC inflation from a narrowing of the gap between mobile and desktop CPCs. Additionally, Google Shopping (Product Listing Ads, or PLAs) still appears to be generally non-incremental to overall paid search spend. They are maintaining a Neutral rating, but raising their price target to $900 (17x 2014 P/E).

2Q 13 Expectations

For 2Q 13,  Wedbush Securities estimate Google Inc (NASDAQ:GOOG) net revenue of $10.18 billion (21.6 percent y/y vs. 22.8 percent y/y in 1Q 13) and total net revenue (including Motorola Mobility) of $11.22 billion vs. Bloomberg (bb) consensus of $11.33 billion. They estimate non-GAAP EPS of $10.72 vs. bb consensus of $10.81. For core search, they are modeling 19.1 percent y/y click growth (vs. 20 percent y/y in 1Q 13 and 42 percent y/y in 2Q 12) and a 6.5 percent y/y decline in CPCs (vs. -12 percent y/y in 1Q 13 and -16 percent y/y in 2Q 12).

Wedbush Securities estimates

Their 2013 revenue/EBITDA/non-GAAP EPS estimates are $46.9 billion/$22 billion/$45.84 vs. $47.5 billion/$21.1 billion/$46.63 previously. For 2014, their revenue/EBITDA/non-GAAP EPS estimates are $54.97 billion/$26.4 billion/$52.67 vs. $56.05 billion/$25.1 billion/$53.76 previously.

Google valuation

Wedbush Securities $900 price target is based on 17x their 2014 non-GAAP EPS estimate of $52.67 (or ~13x P/E excluding cash and interest income), toward the upper end of Google Inc (NASDAQ:GOOG)’s historical forward P/E multiple range of 12x-19x (mean of 15x) over the past two years.

Risks to the attainment of their PT include: variations from expected ad growth, TAC, or margin forecasts; M&A; legal or tech trends; and corporate governance, given super voting stock of senior management.

The Analyst’s mean profit appraisal is presently $10.79 a share, a gain of 67 cents (6.2 percent) from $10.12 during the corresponding quarter last year. Analysts are estimating as low as $9.99 per share, up to the most optimistic estimate of $11.60 per share.