3 Reasons Google Will Earn $10 a Share

Earnings season is about to kick off, and Google (NAS: GOOG) is making sure that it's one of the first names to snag a hunting license.

The world's most valuable online company will be reporting its first-quarter results on Thursday night. Expectations are high. Analysts see Google earning $9.64 a share for the period, 19% ahead of where it landed during last year's freshman quarter.

There are factors tugging Wall Street in different directions here. On the downside, there was Big G's sorry performance three months ago. Margins were squeezed. Revenue per click slipped. It was a rare slip on the bottom line.

Weakness in Europe, Google's penchant for surrendering cost controls in favor of growth potential, and a major revision in its search algorithms played a part in the previous quarter's shortfall. Who would bet on Google in an environment that's ripe for another disappointment?

Well, let's go over the things that will be working in the dot-com giant's favor later this week.

1. Estimates are inching higher
After the initial blowback in January -- when Google delivered that atypical earnings miss -- Wall Street pros initially slashed their near-term outlooks.

Analysts went from projecting $10.12 a share for the first quarter down to $9.57 a share two months ago. A month later that profit target was up to $9.63 a share. Today it has reached $9.64 a share.

This may not be enough to lead investors to believe that Google will earn $10 a share for the quarter that ended last month, but it does indicate that analyst channel checks are improving.

You probably don't need a bean counter to tell you that. Europe -- which accounts for more than a third of Google's revenue -- is showing signs of bottoming out. The stateside economy is showing signs of life, and that in turn encourages advertisers to spend more to drive new leads.

2. Larry Page has plenty to prove
It's been a year since co-founder Larry Page took over as Google's CEO.

An entrepreneurial co-founder rising to the helm didn't exactly work out for Google's onetime rival Yahoo! (NAS: YHOO) , but Page has helped grow Google's business in a kindlier climate than what Jerry Yang had to deal with in his unfortunate run.

Google is cocky. It doesn't provide earnings guidance, giving it the freedom to ramp up its hiring on its own terms. If Google wants to build cars that drive themselves or virtual reality glasses, who are shareholders to tell the company what it should be doing with its tens of billions in greenery?

However, if Google were to post back-to-back quarters of bottom-line misses -- even if it's merely missing analyst expectations, as it doesn't issue guidance itself -- investors will begin to wonder if Page has the cost-controlling skills to run a $200 billion company.

3. Google misses once, but never twice
The last time Google came up short was during last year's first quarter. The market was expecting net income of $8.10 per share, and Google served up an adjusted profit of $8.08 a share. It wasn't much of a miss, but Big G bounced back the following quarter, earning $8.74 a share against estimates of only $7.85 a share.

This isn't an isolated event. Google missed Wall Street guesstimates in seven quarters since going public nearly eight years ago. It has yet to follow up a miss with another miss. Not only that, but it has topped analyst forecasts by 3% to 16% the following quarter.

Oh, you know how badly I want to show you my math.




Beat Next Quarter

Q1 2011




Q2 2010




Q2 2008




Q4 2007




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Q4 2005




Source: Earnings.com.

All streaks end, of course. However, even if Google produces a beat at the low end of what it has done historically, $10 a share in earnings for the past three months is more than within reach.

Beyond the Googleplex
Obviously there is more to Google's financials than its track record and its own ability to manage expectations and profitability.

It was beyond Google's control when citizens in the world's most populous nation chose Baidu (NAS: BIDU) over Google, long before Big G staged a partial retreat. There's nothing that Google fumbled when Microsoft (NAS: MSFT) regained new life through Bing and agreed to pay Yahoo! billions to take over its search business.

If Page and his company fall short on Thursday night it will probably be more about global weakness or cautious advertisers than anything Google can or cannot do to beef up its income statement.

However, until Google finally follows up a miss with a miss, investors would be -- wait for it -- remiss to bet against a strong showing.

Big G gets bigger
Google knows the two words that Bill Gates doesn't want you to hear. Do you? A timely report has the answer. It's free, but only for a limited time, so check it out now.

At the time thisarticle was published The Motley Fool owns shares of Microsoft, Yahoo, and Google.Motley Fool newsletter serviceshave recommended buying shares of Microsoft, Yahoo, Baidu, and Google.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Microsoft. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributor Rick Munarriz isn't afraid of $10 bills. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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