Monday, December 18, 2006

Calls of Note Part 6

- JP Morgan is raising their 4Q'06 revenue estimate on Google (NASDAQ:GOOG) by $40M based on belief that the co is experiencing strong query volume growth and a noticeable pickup in keyword coverage. Firm's revised 4Q revenue, EBITDA, and EPS estimates are $2.23B, $1.39B, and $2.91. (Prev EPS was 2.86, cosensus $2.88)

According to firm's estimates, Google is on track to grow its global query volumes by 14% in 4Q, vs. the market which the firm believes is tracking up 10%. JPM is consequently increasing their Q/Q volume growth assumption to 14% from 13%, contributing ~$20M of incremental revenue.

Google continued to grow its advertising coverage at a steady pace in 4Q, dispelling some investors' concerns that Google's monetization upside may be tapped out. In 4Q, firm's 50K
keyword survey identified a 4.4% Q/Q increase in coverage to 77.9%.

Although the firm estimates 14% volume growth for, most competitors are showing muted 4Q growth. They estimate Yahoo!, MSN, and AOL are on pace to grow 4.5%, 3.0%, and 0.0%, respectively in 4Q. As such, they believe Google continues to gain global market share.

Google Remains firm's Top Pick. Google trades at 33.1x F'07 pro forma EPS estimate of $14.50 compared to its peers at 35.7x. Given that Google is growing significantly faster; JPM believes it deserves a premium, and thus maintains Overweight.

Notablecalls: Note that WSJ is out with a negative piece on GOOG this AM saying co's earning growth may hit a speed bump soon as their $10 billion cash hoard in interest-bearing investments like government securities -- isn't likely to grow at the same rate as last year. Will the JPM note outweigh the WSJ piece?

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