Web search leader Google Inc.’s share price has more than tripled since its August 2004 initial public offering, but some analysts say the stock may tumble if it doesn’t trounce analysts’ earnings expectations, as it has done in each quarter since its debut.
“Unless the numbers are very favorable, there is the potential for the stock to get hit,” said Standard & Poor’s Internet equity analyst Scott Kessler.
“Expectations are getting to a point where they’re excessive,” said Kessler, who rates the stock a “hold,” with a price target of $317.
Shares closed at $291.25 on Friday, down $2.90 on Nasdaq and off their 52-week high of $309.25.
Kessler and others say investors should not be looking for a repeat performance when the company reports second-quarter results on July 21. On average, analysts polled by Reuters Estimates expect Google to have a profit of $1.23 a share on net revenue of $1.32 billion.
Stakes high, bar set higher
Stockholders expect Internet titans like Google to grow at breakneck speed and soundly beat Wall Street profit targets at the same time. When companies fall short of ever-higher expectations, they are punished.
Shares of online auctioneer eBay Inc. dropped 19 percent the day after its fourth-quarter profit rose 44 percent. While results matched company targets, they missed analysts’ average estimate for the first time in eBay history.
Yahoo Inc., Google’s closest rival, last July posted a second-quarter profit that doubled from last year, but the stock shed nearly 8 percent after results only matched Wall Street’s average estimate.
Google investors have grown accustomed to eye-popping overperformance from the Silicon Valley Web darling and have pushed Google’s market value to more than $80 billion compared with eBay’s $45 billion and Yahoo’s $48 billion.
In April, the company reported net revenue of $1.26 billion, 8 percent above analysts’ average estimate, and earnings of $1.29 a share, excluding items, 40 percent higher than the consensus.
‘Looking for solid results’
“We’re looking for solid results, but not the same kind of tremendous upside that we saw last quarter,” Susquehanna Financial Group analyst Marianne Wolk said.
Google had quarter-over-quarter revenue growth of more than 20 percent in the March quarter, fueled by strong overseas business. Sequential growth for the June quarter appears to have been 5 percent to 10 percent, she said.
Wolk and other analysts said growth versus the first quarter may have been tempered by seasonal factors -- people spend less time on their computers during the warm summer months.
The rise in the U.S. dollar during the June quarter may have also moderated Google’s revenue growth, analysts said.
Target price $360?
Betting against the company has often been a losing proposition, costing investors dearly. And while Google’s shares have been volatile, on some days ending down a few percent, its trajectory has generally been up.
“Everyone has raised their price targets on Google shares. The low end of the range is $300, and one firm has a target of $360,” said Michael Acampora, director of trading at Gargoyle Strategic Investments, a New Jersey-based firm specializing in options and options strategies.
Google debuted last August in the most highly anticipated IPO in recent memory at $85 a share.
It operates one of the Web’s most popular and powerful search engines, scanning more than 8 billion Web pages. Founded in 1998 by two Stanford University Ph.D.s, Google attracts tens of millions of users and gets virtually all of its revenue from advertising linked to searches.