Fourth-quarter pro forma EPS increased 68% year-over-year to $1.54, missing our estimate of $1.74 and the consensus estimate of $1.76 by a significant margin. However, we note that the culprit was the company's 4Q'05 effective tax rate of 41.8% (vs. our expectation of 30.5%), as a higher proportion of the company's expenses were allocated to international operations, leading to a greater percentage of profits taxed at higher domestic tax rates. If the tax rate had matched our estimate, we calculate 4Q'05 EPS would have been $1.78, a couple of pennies above the consensus estimate.
Prudential actually raised their 2006 earning estimates and target stock price tonight after seeing Google's fourth-quarter numbers. Their new target is $500/share, up from $400.
Based on continued strength in the fourth quarter, particularly advertising growth on Google's own web sites, we are raising our forward estimates. We now expect Google to earn $9.31 per share in full-year 2006 (up from $8.81), and we are introducing our full-year 2007 estimate of $13.56.
But let's call it like it is, shall we? Wall Street's target wasn't really the published EPS of $1.76, since expectations that Google would trounce this number were already built in. And BuyGoogle's blather about a blowout quarter was horribly wrong as well.
The net result is that Google had another extraordinary quarter -- net revenues again rising
So where does that leave us? For me, I'll be much more hesitant to play short-term trading games based on guesses about Google's quarterly performance -- this quarter those trades cost me dearly. But the company is sound, all the numbers are going in the right direction, and if the numerous references to accelerating the rate of innovation in 2006 come true, it should be a good 2006 for Google.
Buy low, sell high.