Foolish Forecast: Ogle Google, the Advertising Mogul

If it's Google (Nasdaq: GOOG  ) , it has to be clean, clear, and simple. The search and advertising leviathan reports earnings Thursday night, so I'm here to break down the company's prospects in a clean, clear, and simple way. It's all for you, Fool. (If you like, you can flip to last quarter's earnings for a refresher.)

What Fools say:
Here's how Google's Motley Fool CAPS score rates against some of its peers and competitors:

Market Cap (billions)

CAPS Rating (out of 5)

Bull Ratio

Microsoft (NASDAQ:MSFT)

$285.2

**

82%

Google

$194.1

**

69%

eBay (NASDAQ:EBAY)

$52.6

***

89%

Yahoo! (NASDAQ:YHOO)

$36.4

**

86%

Baidu.com (NASDAQ:BIDU)

$10.7

***

82%

CAPS data taken from Motley Fool CAPS on Oct. 16. Market cap data from Yahoo! Finance.

The CAPS community doesn't seem to appreciate the online marketplace very much at the moment. And Google gets the shortest shrift of all, despite a dominant market position. So what's wrong?

Well, lots of players are worried about valuation and how Google's pay-per-click advertising model is supposed to make the company more valuable than Wal-Mart (NYSE: WMT  ) . Some complain that giving away your information for free cannot possibly generate profits; others think Google is getting greedy and losing touch with its search-supremacy roots. And then there's the cadre of general bears who see the market as a whole getting ahead of itself and expect Google to "take the fall" with a disappointing earnings report. (Read the rest of the Google comments from more than 1,500 CAPS players.)

What management says:
The big G doesn't do guidance -- never has, and might not ever go there. Fellow Fool Selena Maranjian doesn't mind going without official estimates, but the Wall Street gang would certainly prefer a little more hand-holding.

Last quarter's analyst consensus was the best guess the Street has ever offered on Google, landing within 1% of the actual earnings result. So Mr. Market took that as a death knell and sent the share price down by $28. Since then, the stock price has recovered and blasted past the $600 mark. Not to mention that since Google went public, it has managed to crush analyst estimates in 10 of its 12 quarters, with estimates off sometimes by as much as 40%. Sounds like these guys can't see the value of click ads, either.

What management does:
This is an unflinchingly steady margin picture backed by a still-vibrant sales growth trend. Yes, it's slowing down a bit, but even the traditional paragons of hypergrowth like Microsoft and Starbucks (Nasdaq: SBUX  ) eventually had to grow up. With large scale comes slower percentage growth, sooner or later.

Margins

3/2006

6/2006

9/2006

12/2006

3/2007

6/2007

Gross

58.9%

59.5%

60.1%

60.2%

60.1%

60.1%

Operating

34.5%

33.8%

33.9%

33.9%

33.6%

32.4%

Net

23.7%

25.2%

26.0%

29.0%

29.0%

27.5%

FCF/Revenue

24.0%

16.9%

16.6%

15.8%

15.2%

17.4%

Growth (YOY)

3/2006

6/2006

9/2006

12/2006

3/2007

6/2007

Revenue

88.1%

83.3%

77.5%

72.8%

68.4%

63.6%

Earnings

139.7%

113.5%

86.5%

110.0%

106.5%

78.6%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Marketing is marketing, whether the message is splashed up on billboards, flickering across TV screens, trailing a skywriting plane, or streaming out of your car radio. Or blazoned on your favorite Web pages.

I haven't thought of Google as a search company for ages. That is now just one way to drive ad traffic and build mindshare for this company, no matter how important it is becoming for the average Net user.

The Three Musketeers -- Schmidt, Brin, and Page -- have their sights set outside the computer screen these days, aiming to take the lessons learned online and apply them to other, more traditional types of media. Don't be surprised if you hear "this marketing message brought to you by Google AdSense" on the radio soon, or see it when Dancing With the Stars goes to commercials. OK, that's an overdramatization -- Google will likely be the man behind the curtain that organizes and presents your marketing consumption, making silent but deadly profits.

We're not there quite yet, but online search and marketing is doing fine for now. Wall Street doesn't know exactly what to expect, and neither do I. But it's all just short-term market noise anyway. Buy and hold for the long term and offline opportunity.

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