Google Can't Miss

Circle Thursday on your calendar. If you don't have a calendar handy, Google (NASDAQ:GOOG) can let you borrow a virtual one.

As the world's most valuable dot-com company gears up to release its first-quarter numbers, Thursday's report could distinguish Google as either a 12-figure market cap company or one that should be commanding a more modest 11-figure cap.

Google was everyone's darling after going public at $85 a stub in the summer of 2004 and then rattling off five straight quarters of market-thumping performance. Then it stumbled over the 2005 holiday season. Analysts, for a change, had to rubberneck to catch a glimpse of the Google that their models had lapped. Suddenly, Google was mortal. Exuberance needed a seat belt.

You can't ask for a better climate than that for Google to get back on its "eat my dust" tear.

Wild pitches always miss the strike zone
Look back at Google's first half-dozen reports as a public company, and it's easy to see why Wall Street can't seem to get it right. For most public companies, quarterly financials are simply a formality. Companies issue guidance on what they think they will earn. They err on the conservative side, so analysts snicker and tend to clump together at the high end of a company's projected profitability range. When the company tops that mark by a penny or two, everyone wins. The stock is praised for beating the market. Analysts are applauded for coming so close. Individual investors know it's all a show, but they have no problem profiting from the predictability.

Google wasn't about to play that game. It has never issued forward guidance. The company has no problem talking about its past and what it's got simmering on the stove, but it has never released concrete bottom-line targets. That's probably why analysts have never gotten Google right.

Wall Street hasn't just missed Google's performance by a double-digit percentage basis every single time. It has never gotten closer than $0.14 a share away to ultimate reality. That's why history is going to be tested come Thursday. Despite the company's miss this past quarter and the weakest sequential uptick in its brief history, analysts think the company is good for $1.97 a share in the recently concluded March quarter.

You could easily subtract $0.14 from $1.97 to arrive at $1.83 a share -- or skim off 11% to arrive at $1.75 per stub -- in your office betting pool. Getting any closer to the $1.97 mark would represent the tightest earnings surprise in Google's history. It can happen.

But wait a minute. What if Google posts earnings that are $0.14 better than $1.97? Obviously, it can happen, too. And at the very least, the seeds are in place for Google to regain its market-crushing ways.

Reasons to be cheerful
I'm going to tell you a little bit about me. Bear with me -- it has more to do with Google than you may think. As an online geek with a passion for theme parks and traveling, I snatched a few choice domain names in 1998 and built a couple of related websites. Nothing fancy -- it was just me and my hand-coded HTML-programming primitive ways, along with a nose for travel journalism. It was a hobby. I really had no grand monetization plan. I was just hoping to share my passion with the rest of the wired world.

A few months in, I joined Amazon's (NASDAQ:AMZN) Associates program, which lets you earn between 5% and 15% on any Amazon sales generated from your site. I rang up a few travel-book sales, but I felt as though I was missing something. A couple of years later, I signed up with the TravelNow hotel affiliate program run by IAC/InterActive (NASDAQ:IACI). That made a little more sense and earned me a lot more cents.

I certainly wasn't going to retire by making $20-$30 a month through Amazon and $150 or so monthly through TravelNow, but it was nice. I knew I could still do more, but I just didn't have the time or the mettle to solicit advertisers on my own. That all changed in 2003, when Google launched AdSense.

I signed up that summer and didn't know what to expect. I placed Google ad blocks on a few pages and went off with the family for a weekend at the beach. When I returned home, I couldn't believe my sandy sandals and my dot-com good fortune. I spent the next few days integrating the ads throughout my sites and couldn't be happier with the AdSense program over the past three years.

Google's terms prohibit me from discussing things like click-through rates and ad statistics. That's a lamentable pity, but I'm not about to bite the hand that feeds me. Google is now competing against a similar service offered by Yahoo! (NASDAQ:YHOO), and Microsoft (NASDAQ:MSFT) won't be too far away once its AdCenter gets off the ground. The less they know about the inner workings of Google's wildly successful AdSense program, the better.

However, Google does grant me the right to disclose how much I've earned through the program. In a nutshell, I make considerably more in a single month with AdSense than I was generating through all of my other affiliate and associate programs, combined, over an entire year.

Since I'm not sure whether I can get into how my performance has fared over the years, I would just like to point you to website publisher forums such as WebMasterWorld.com, where you will find several AdSense publishers commenting on how well things have been going in Google's third-party advertising program. March was a record month for many of those publishers, apparently, and even though AdSense accounts for a thin slice of Google's profits, a healthy first quarter for AdSense publishers may be as good a public indication of the quality of competitive sponsor bidding on keywords as companies like Blue Nile (NASDAQ:NILE) are when they whine about contextual advertising bids getting out of control.

That is simply just one part of the equation, of course. Healthy economics in the online advertising market wouldn't mean much if Google wasn't generating healthier organic traffic. Thankfully, things seem to be going well on that front. According to comScore, Google's search engine is gaining market share at the expense of Yahoo! and MSN.com. If you go to Amazon's Alexa.com, you will find that Google was the third most visited site in the December quarter but vaulted past MSN to claim the silver medal in the March quarter.

Putting it all together
These are all imperfect gauges. From a limited sampling of happy publishers to Alexa's rankings that are based only on the public that has downloaded the Alexa toolbar, the margin of error is wide here. Further complicating the puzzle is that even if everything seems to point to a healthy period in terms of the top line, the company's frenetic hiring pace and its penchant for dabbling into new projects blurs how everything will all flow down to the bottom line.

Still, at least that part is something that Google can control. After burning the Street once, one would think that Google would be cutting expenses and holding back in March if it thought it was going to come up short yet again.

Google will argue that this is exactly the kind of reasoning that led it to abandon the practice of providing guidance. It doesn't want to live quarter to quarter. It's a noble pursuit, but Google is also a company that has tapped the market for stock offerings three times in as many years. If it expects to keep its share price buoyant and its access to future secondary offerings flowing freely, it would be difficult to score that kind of market support if it comes in well below where analysts are perched for the second time in a row.

And that's why Google can't miss and, in all likelihood, won't miss.

Blue Nile was recommended to Rule Breakers and Motley Fool Hidden Gems subscribers. Amazon.com has been a winning pick for Stock Advisor readers. Microsoft is part of the Inside Value bargain-stock universe.

Longtime Fool contributor Rick Munarriz is a huge fan of Google, and it would be his homepage if it weren't for Fool.com taking up that piece of real estate. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.