GOOG EARNING 3Q11 ($400 or 110%)

Basic information

• after the close of 10/11, Goog is trading at 543
• 52 Week high = 642 (1/1/2011). 52 wk low = 473 (6/24/2011)
• Short %=2%
• Cash per share: 121.15 or 39 billion cash in total
• Total 2010 earning 6.76, 6.45, 7.64, 8.75 = Total 29.6 EPS
• A) P/E: 19.6. B) Forward P/E 2012: 15.8 (scottrade), 12.95 (yahoo). C) P/E without cash: $29.6/($543-$121.15)= 7 P/E
• Operating margin 33.62%. Profit margin 27.05%
• YTY EPS growth 28.9%
• 3Q10 EPS 7.64. The stock gapped up 60 point from 540 to 600


• Current quarter Consensus: Estimate high = 9.15 (19% growth vs 7.64 from 3Q10), Low = 8.09 (5% growth), Mean = 8.74 (14%)
• History of beating consensus.
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  	Report	Consensus	Beat by	% beat
  4Q09	6.79	6.48	0.31	4.78%
  1Q10	6.76	6.59	0.17	2.58%
  2Q10	6.45	6.44	0.01	0.16%
  3Q10	7.64	6.7	0.94	14.03%
  4Q10	8.75	8.13	0.62	7.63%
  1Q11	8.08	8.1	-0.02	-0.25%
  2Q11	8.74	7.84	0.9	11.48%
  Average			0.42	5.77%

  
  

Key point summary:

• Stock has history of gap up and run because the earning is usually right before expiration. Not this quarter.
• Bought Motarola for 12.5 Billions or 38.7 per share. Likely affect margin %.
• China slowdown wont be affected as they have almost no market shares.
• New product: Google + is slowing and does not appear to be a heat no more. Goog Air just got rolled out but not as popular as well. However, no data support.
• Potential recession in EU and US. (may actually be good for goog as it is a cheaper form of advertisement?)
• Andriod smart phone mkt share near 50%. Growing 9%. (iphone is 20 millions or 19%)
• New CEO's second Conference. Last time he did not give a road map for the company. This time he bought motarolla and he needs to explain the future strategy.
• No I-phone 5.

Technical

Option Flow/ Skew:

• Implied on the weekly is 84% and the October one is 38%
• Weekly is pricing in a $38 move (7%). Oct is pricing in $43 (8%)

My thought:

• Consenus is $8.74. Using the average beat of 5.77%. It might be $9.24. So the estimated Yearly EPS will be $37 (using 28% growth for 4Q11). However, with Cash level is 33% less than previous quarter, the P/E without cash will be a lot higher. Therefore, any beat will not be as explosive as before.
• The average move after earning is 7%. Since this is not option expiration week and the weekly does not have a lot of open interest (they even just open the strike that is above 550 today), I do not think we will see a 7% move.
• Last earning we had GOOG+ chatter/ excitment . Not this time.
• Margin may be affected by the purchase of Motarolla.
• In summary, I think the option is a sell vol here. Iron condor for Oct seems to be the best with Implied as 38%. Diagonal sell not very good here as weekly strike has not been opened up and I dont think we will get a big move like before. Straddle is not a smart sell as it is too risky.
• Since the Oct is pricing in $43 (499 to 587 range). Iron condor seems to make sense (470 to 600 range): STO 600 call, BTO 605 call, STO 475 put, BTO 470 put for 1.3 credit or better.
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