AmTech notes GOOG will report Q3 results tomorrow. Results are likely to fall modestly short of $4.79 consensus EPS. While firm expects a slight shortfall, firm anticipates the report will be better than feared. The paid search model is proving to be very resilient in the face of macroeconomic headwinds, but does remain susceptible to the slow-down in overall ad spending. The stronger U.S. Dollar will cost GOOG roughly $110 mln in 3Q08 rev, $260 mln in 4Q08 rev and $1.3 bln in 2009 rev. Firm does not believe consensus fully reflects currency fluctuations. GOOG put on significant EUR and CAD hedges around mid-year, a very timely decision. Gains from these hedges have been substantial to date (they est $284 mln during Q3 and $135 mln Q4 to date). These are amortized over the 18 months of the forward contract, but only provide a partial offset. Firm is encouraged by curtailment of employee-related expenses, but think Street EPS ests have to come down.
Silicon Alley Insider reports two updates on Google's recent trends before the company reports Q3 earnings on Thursday. The first, query growth for the month of September, is a slight positive. The second, an anecdotal report on retail search spending in September, is potentially ominous for Q3 results and beyond. First, query growth. Doug Anmuth of Barclays jumped on the monthly Comscore report that was released this evening after the close. "comScore U.S. query volume & share data out after close Tues. night is a slight positive for GOOG. Query growth reaccelerated to 35% in 3Q (fastest growth since Jan.) & share now at 62.4%, but share down M/M in Aug. Overall industry query growth of 21.7% is fastest since 3Q07. Query accelerated in September, potentially from back-to-school, Presidential campaign, & credit environment."... So that's fine. And overall, the anecdotal search spending reports for Q3 we've seen were also fine. But there was an alarming point made by Roger Barnette, the CEO of SearchIgnite, in an RBC study this week. Specifically, search spending by US retailers dropped off sharply in the month of September as the economy weakened. This is probably not massively material for Google's Q3, but if the trend continues, it could have a significant impact on Q4. It also provides further evidence that Google and search spending are not, in fact, immune to the recession.