This should be fun. Google (NASDAQ:GOOG), the world's greatest search engine (and reputedly its least evil company) reports Q4 and full-year 2005 earnings tomorrow. Get ready for Jim Cramer to blow a gasket -- whichever way the news goes -- and to assert once more, with a perfectly straight face, that 50 times whatever number Google reports for its annual earnings is a perfectly reasonable price to pay.

Wall Street Wisdom:

  • General consensus. An astounding 38 analysts follow Google. More astoundingly, 29 of them think the stock remains a "buy" at 96 times trailing earnings. Only three souls are brave enough to bet against the company's success and apply "sell" ratings.
  • Revenues. Analysts believe that revenues for the quarter rose a healthy 25% year over year.
  • Earnings. Analysts think that profits did even better, and predict that $1.76 per share will be announced tomorrow.

Margin watch:
Google's margins are a thing of beauty, and the upward trend they're on is even more stunning. Over the past 18 months, its gross margin (its revenues, minus the cost of providing its services) has increased just 430 basis points on average. But by the time you reach the bottom line, Google has nearly tripled the number of pennies it gets to bank, out of each dollar of revenue brought in. That's just fantastic.

Margins %

6/04

9/04

12/04

3/05

6/05

9/05

Gross

52.9

53.0

54.3

55.5

56.3

57.2

Op.

35.5

34.8

35.5

36.7

37.3

37.8

Net

8.4

8.3

12.5

18.6

21.6

24.7
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Valuation metrics:
Unfortunately, the valuation looks pretty darn amazing, too. (Amazing as in, "If you think it can maintain this multiple indefinitely, you're dreaming," unfortunately.) The stock sells for 96 times trailing earnings and an only slightly more reasonable 84 times trailing free cash flow. To put those numbers in context, they're both about three times the company's projected long-term growth rate and roughly four times its return on equity. No company is worth those multiples -- not even Google.

Fool contributor Rich Smith is neither long nor short Google.