Google Inc (GOOG) GOOG Q1:10 “Cheat Sheet” $GOOG "Read THIS"

Google is scheduled to report on April 15th, after the close. We are looking for$5.07B in net revenue (up 24% Y/Y and up 2% Q/Q) and $6.71 in non-GAAP EPS.This compares with consensus expectations of $4.93B and $6.56. We note thatwith 325MM shares outstanding and a 23% tax rate, $0.01 upside to our estimaterequires only $4MM in incremental operating income. Based on extensive intraquarterchannel checks and our model sensitivity work, we believe Street Q1estimates are reasonable, with greater variance likely to the upside than to thedownside.Our GOOG fundamentals call for Q1 is positive.

We anticipate acceleration inGoogle’s FX & hedging revenue-adjusted Y/Y Gross revenue growth – fromapproximately 16% Y/Y in Q4 to approximately 25% Y/Y in Q1. We anticipateGOOG’s proforma operating margin to be up around 114 bps Y/Y to 54.2%, tho’down 150 bps vs. Q4’s margin of 55.7%. While Q1 is seasonally weaker thanthe Q4 holiday season, we continue to believe that Q1 should benefit fromcontinued strength in certain key verticals, including travel, some retail, andautos.

We reiterate our Buy and $640 PT on GOOG and view the long-term risk-rewardon GOOG shares as attractive at current levels. Visibility into GOOG’s quarterlyresults is always limited, but channel checks, datapoints & our proprietaryanalysis give us a greater measure of confidence in our estimates – $5.07B innet revenue vs. the Street at $4.92B and $6.71 in non-GAAP EPS vs. the Streetat $6.55. Directionally, our work suggests a flat-to-up Q1 Q/Q revenue trendfor Google vs. the flat-to-down Q/Q revenue trend implied by consensusestimates. Further, we view our core long thesis on GOOG as well-intact:

• there is still significant secular growth ahead for Internet Advertising, given thatonly approximately 10% of global advertising/marketing dollars are currentlyonline; 
• Search has been and remains the most dynamic/best growthsegment of Internet Advertising, and Google is the clear market shareleader/gainer in this segment; 
• Google’s option value in terms of otherInternet Advertising segments – Mobile, Display, Video – is increasinglybecoming material; 
• as a heavily fixed cost model, Google presents very wellas a cyclical recovery play; 
• relatively newfound cost efficiencies havecombined with 4 to create an outlook for modest – but sustained – marginexpansion; and 
• Google management has increasingly proven itself to be inthe class of the sector’s best.