Crazy Google earnings estimates 3Q 2007

Google's announces earnings today. It will net $1.29 billion ($4.13 per share) on a GAAP basis,  on $4.30 billion gross revenues for 3Q 2007. Assume TAC (traffic acquisition costs) of 30% as usual, and that's net revenues of $3.01 billion.

Those are my guesses. Wild, I admit. Google provides the most fun for playing the earnings guessing game because, unlike virtually every other company, it follows the letter and intent of disclosure laws, which say that you cannot give inside information to any limited group of people. So it gives no guidance to investment bank analysts.

Every other public company has private meetings with analysts to keep them from being surprised. The stock market hates surprises. The companies get away with this because they also put the data given to analysts on their web sites. But the analysts are about the only ones that study the data.

The average estimate from those analysts is EPS of $3.78, with a range of $3.55 to $4.04. Average estimate of net revenues is $2.94 billion, with a range of $2.80 billion to $3.70 billion.

Silicon Alley Insider likes to get anyone to make their guesses for a chance at the honor of being right and beating the analysts. Four estimates on the site range from $3.93 EPS to $4.20, with revenue estimates ranging from $2.984 billion to $3.3 billion. So the public is a little more optimistic than the analysts.

24/7WallStreet.com says "We have recently seen many analysts up their targets on the stock, so this 'earnings estimate' is now going to be a mere lower-end benchmark where many are looking for a blowout number."

That site also warns that hiring might depress profits a little, as it did last quarter. "The company has already tried to warn traders about expense growth exceeding revenue growth, so if any analysts come out with "we are disappointed with expenses growing fater than revenues" then they aren't reading the filings and aren't listening to what the company says. "

SeekingAlpha.com notes that in the last week, a lot of traders are hedging bets by selling calls above the current share price. It says investors are probably hedging "against a downside surprise ... due to general skittishness over the share's current all-time-highs."

Bloomberg gives a nice summary of warnings that the stock could drop today.

David Katz, who helps manage $1.7 billion as chief investment officer of Matrix Asset Advisors in New York tells Bloomberg, "There's very little room for disappointment." The stock is "very richly valued,'' Katz said. "We would not own it."

Investors, the ultimate in crowd wisdom, had bid the stock up $3.63 to $636.80 by 2:49 PM ET today.

Bloomberg says it may be overvalued  because "at 49 times this year's estimated earnings, Google shares are more than twice as expensive as those of Microsoft Corp., Intel Corp. and Hewlett-Packard Co."

Big deal. Google is growing faster than those companies and gives more consistent results.

Here's how I figure it: Last quarter Google  reported revenues of $3.87 billion for the quarter ended June   30, 2007,  an increase of 58% over year ago and 6% higher than the first quarter of 2007.

In the 3rd quarter of 2006, Google's revenues were up 70% from a year ago. So I'm going to randomly guess that Google revenues will be up 60% over last year this quarter. That means gross revenues of $4.30 billion this quarter.

In 2Q 2007, Google's GAAP net margin was 24%, lower than usual. In Q3 2006, GAAP net margin was 35%. So I'm going to guess a 30% net margin this quarter, or GAAP earnings of $1.29 billion or $4.13 per share.

Google's press release on the 2Q earnings was released July 19. Over the next several days after that announcement, the stock dropped from about $550 to $508. That's a GAAP P/E of 173 on the quarter's earnings after the decline. That means the stock should be worth over $700.

Guess it'll go up.