Wedbush Equity Research expect Google Inc (NASDAQ:GOOG) to report first quarter earnings of $10.79 per share. Although the research firm reduced its previous estimate of $11.10 per share for the engine giant, its current expectation is higher than the $10.69 per share consensus estimate of Wall Street analysts.
According to Wedbush analyst, James Dix, the research firm reduced its revenue growth estimates for Google Inc (NASDAQ:GOOG) based on search checks indicating deceleration from 4Q. Agency checks also showed that ad spending in Western Europe faced greater than expected macro pressure. Dix cited that the firm expects less upside from Product Listing Ads (PLAs) in the first quarter compared with the 4Q, which was retail-heavy due to the holiday season. The firm also estimated ~$100 millin FX revenue drag on y/y basis.
According to him, the impact of Enhanced Campaigns (EC) for the first quarter was small because the service was only introduced in February. He speculated that many are still holding off or testing the new service with lower-volume campaigns.
For the second quarter, Dix emphasized Google Inc (NASDAQ:GOOG)’s business and margin trends will improve. The research firm increased its 2014 EPS estimate for the search engine giant from $53.43 to $53.75 (Street- $53.48) citing that Enhanced Campaigns could boost Google’s top line growth and steady margins. He projected that Enhanced Campaigns could raise paid search growth by approximately 5 percent after the mid-2013 mid-conversion cut off.
However, the search firm also noted risk from macro and lack of margin visibility. Dix wrote, “Once EC becomes mandatory, mobile-only campaigns will no longer be possible, likely pulling in some spending from categories that might not advertise on PC. Marketers will have more incentive to have device-specific experiences…EC could face initially hesitant advertisers, and over the longer term. Facebook Exchange could retard display, and ultimately even search growth.” According to Dix, YouTube’s revenue will increase to around ~40 percent in 2013.
Wedbush recommended a neutral rating with an $800 price target for the shares of Google Inc (NASDAQ:GOOG). The firm explained, “Our PT would be ~12x 2014 EP/E ex-cash, a discount to our ~15 percent forecast FCF CAGR and at a lower end of ~11 -35x forward P/E range for Gooog Inc (NASDAQ:GOOG) shares this past cycle. Risks to the attainment of our PT include variations from expected ad growth, TAC, or margin forecasts, M&A, legal or tech trends, corporate governance given super-voting stock.”
