Will Google Earn $1.99 Per Share in Q1 2006?posted by MR WAVETHEORY at 3/23/2006 01:20:00 PM
Google earned $1.54 per share in Q4. In order to earn $1.99, it needs to add 45 cents sequentially to the bottom line. Has Google historically been able to achieve this type of growth in EPS?
Below, I calculated the sequential EPS increase from quarter to quarter.
Q2 = +7 cents from Q1
Q3 = +15 cents from Q2
Q4 = + 3 cents from Q3
In the past 3 quarters, Google has never added more than 15 cents sequentially to its EPS.
To assume a 45 cent increase seems like wishful thinking. Is it possible? Sure. But going by the numbers, they've never added 45 cents sequentially to the bottom line from one quarter to the next. Also, look at the amount by which Google has surprised the Street and you see a trend developing. The amount Google has surprised the Street by was 40.2% in Q1. It proceeded to decline sequentially to 12.4% in Q2, 11.0% in Q3, and -12.5% in Q4. Do you see a trend?
EPS is suffering from poor expense control, high levels of hiring to fight Microsoft, and dilution from stock options exercise
I think the lack of EPS growth has to do several factors including poor expense control, high levels of hiring, and all the stock options management exercises - none of which appear to be slowing down. Take stock options. It is not rare to see around 250,000 shares of insider shares being sold any given day. That annualizes to 60 million shares in a year or $18 billion of stock. If you round the numbers, that implies 18% dilution. Or take the hiring that is happening which is necessary because of the threat from Microsoft. Or finally, the lack of expense control or financial control which really reared its head in Q4.
Judging from these factors, my conclusion is that it will be difficult for Google to meet its EPS target.
Love the product. Dump the stock.
Mr Wave Theory