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Thursday, January 22, 2009

Google 4Q:08 results

Revenues were slightly better than expected, coming in up 4% -- the street was at roughly up 2%. Non-gaap EPS were better due to better operating margins and lower network traffic acquisition costs. As mentioned here numerous times, Google has been aggressively managing costs. All in all, it's a good showing in a poor overall economic climate.

That said, it's likely you're looking at a peak quarter. Seasonality is likely to be a factor this year – it never has been before. Sequential increases in revenue have been getting smaller and smaller. In 06/07, Google grew 14.3% q4/q1. In 07/08 it was 7.4% q4/q1. In 08 its 2.8% in Q4 – this deceleration likely points to down revenue for next quarter for the first time in the company's history. Google is maturing and having trouble finding that next multi-billion dollar driver.

Google is down quite a bit from its peak of $740 late last year. It trades at a far more reasonable multiple of ~14*2009 earnings. The stock can probably support $330 on current fundamentals. It's likely, though, that as the quarter limps along, people will again become concerned about a slower top line and stock will trade closer to $280. That's a nice wide range and there will be lots of trading opportunities. Again, the risk/reward here isn't particularly compelling.


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