Robert W. Baird believes that Google Inc. (NASDAQ: GOOG) finished 2011 on a strong note, with healthy Search and e-commerce trends likely driving upside to consensus estimates. The brokerage reiterated its outperform rating on shares of Google, while increasing its price target to $760 from $700.
Specifically, we expect that Google site revenue continued to grow in excess of 30 percent and network revenues close to 20 percent driven in particular by strength in click volume, supported by our intra-quarter checks, as well as third-party data from Performics, Efficient Frontier, Channel Advisor, among others, said Colin Sebastian, an analyst at Robert W. Baird.
Sebastian believes that Search remains the most effective form of online advertising, and that Google's increasing focus on commerce and innovation are helping to drive seasonal strength in the fourth quarter.
While Google does not face the same downward pressure on product margins that impact pure-play online retailers such as Amazon.com do, Sebastian does believe that higher-than-expected selling and marking expenses could be a wildcard for margins.
In addition to heavy Chrome advertising, Google is increasing its Google+ advertising; however, Sebastian does expect robust revenue growth to accommodate higher selling and marketing expenses on a percent of revenue basis.
Sebastian believes that Google's emerging leadership position in Display also helped to drive a strong fourth quarter. In the year ahead, he estimates that Google could generate $5 billion to $6 billion in Display revenues, vying with Facebook for dominance in the growing branded ad market online.
He estimates that in 2012 smartphones and tablets will generate roughly $5 billion in revenue for Google in the form of Search and display ads. Google continues to enjoy even higher share of both search and display on mobile devices than on PCs.
Potential 2012 catalysts beyond earnings include third-party search data points; closing of the Motorola acquisition; Google+ hitting user milestones; Android market share gains; expanding usage of the Chrome browser; and the further expansion of vertical networks, such as travel and local commerce, said Sebastian.
The brokerage raised its fourth quarter EPS estimate for Google to $10.51 on revenue of $8.4 billion from $10.12 on revenue of $8.27 billion and its 2012 estimate to $44.23 on revenue of $36.33 billion from $43.02 on revenue of $35.68 billion. The brokerage also increased its 2011 EPS estimate to $37.06 from $36.66.
Google stock is trading up 0.25 percent at $644.01 on the NASDAQ Stock Market at 9:46 am EST.