Tuesday, October 11, 2011

Trading idea #1 - Google earnings

Google will release their Q3 earnings this Thursday after the market closes. Even though the market may be due for a correction this week I expect Google to carry some strength all the way to the earnings. While the last two months has been largely dominated by macro data, we are heading into the earnings season and we will definitely see some companies that are performing well even at these times, Google amongst them.

First some insight into how Google has performed during earlier earnings releases. Before the last earnings announcement on July 14th the stock was standing still before the announcement and closed up only $2 at about $529 after a two-day standstill. After beating the estimates the stock opened at $597.5 the next day. In April's earnings announcement the stock was down 8% after ER and in the beginning of the year it also went into earnings with a steady 2% rise the earlier week and was up about 3% after earnings report.

It is expected that Google will report an EPS of $8.76 compared with $7.64 a year ago. This means a 14% growth YoY. Revenue is expected to be at 9.4 billion USD. (Briefing.com consensus). Google reported an EPS of $8.74 in the previous quarter, $7.83 was expected. So it shouldn't be a surprise if Google beats estimates, especially considering that there hasn't been any major signs that Google or online advertising revenues are slowing down. In Google's case it should actually be vice versa - Google+ was introduced recently and so far it has gained a lot of users. The share of smartphones using Android platform is growing, the same goes for tablets.

I will hold some shares into earnings since I haven't seen any too negative signs that might indicate that Google is slowing down. Something that Gartner has said, I guess. In the end it all comes down to the question whether the recent economic slowdown has slowed down Google or not. If Google can surprise positively we can expect a nice rally and some support for technology companies as well. Negative surprise might lead to a quick correction. Interesting week.

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