Overall, Google Inc (NASDAQ:GOOG) third quarter reports are expected to be a bit on the lower side the owing to concerns over a possible (but temporary) revenue loss from the Enhanced Campaigns (EC), and related impact on CPC and Paid Clicks. However, Deutsche Bank analysts (Ross Sandler, Lloyd Walmsley, Deepak Mathivanan and Kevin LaBuz) expect core revenue to be better than consensus 4 percent quarter on quarter fueled by growth in Google websites and international.
On the concerns surrounding Enhanced Campaigns, analysts believe it to be “overblown” and that it “should create the opportunity for an upside move in 3Q.”
Google to post better results
According to Deutsche Bank analysts, key margins for the third quarter are expected to come in better than earlier quarters, further stabilizing in the first quarter of 2014. Considering revenue, analysts expect that the search engine giant will post better than expected results worldwide in the third quarter, and an upside is expected in most of the numbers.
Analysts expect net revenue to be around $10.59 billion, an increase of 4 percent quarter on quarter and slightly above expectations. As Google Inc (NASDAQ:GOOG) gives higher ROI, analysts are expecting an increase in budget spending; the recent cross-device conversion estimator feature in Adwords should help. Decline in the margin by around 600 basis points over the last few quarters should ease slightly in the third quarter as Google Inc (NASDAQ:GOOG) “comps the first quarter of Nexus revenue from last year.”
EBITDA is expected to be down by 400 basis points which can be conservative. Adjusted earnings per share is expected around $9.91, considering flat MMI margin, 20 percent tax rate and $152m of interest income.
Google entering a mature phase
Deutsche Bank analysts have a Buy rating on Google with a price target of $970. According to analysts, they have assigned “slightly below” target multiples to Google when compared to peers, as the internet giant is entering a “more mature phase in its life cycle,” which makes it difficult for the company to maintain “elevated growth rates.” Key risks include mobile monetization and stability of the Android ecosystem.
Google shares have traded within a range for most of the third quarter as Facebook’s enhanced market capitalization has taken a toll on Google Inc (NASDAQ:GOOG). Deutsche Bank analysts are positive on Google and mark it as their top pick among large cap companies.
