Google Earnings Preview (GOOG, AAPL)

Google (NASDAQ: GOOG) will be reporting their quarterly earnings after the closing bell today. Analysts polled by Thomson Reuters are estimating that the Mountain View, California based tech giant will report earnings per share of $6.60 on $4.95 billion in net revenue. This compares to last year's Q1 reported earnings of $5.16 per share, on revenues of $4.1 billion.

Sentiment ahead of this report is moderately bullish, with the Street looking for 21% year over year revenue growth. "Based on our channel checks, we believe advertising spend is returning to its more typical pre-recessionary patterns," wrote Imran Khan of J.P. Morgan in a note to clients on Tuesday. "Furthermore, we believe [cost-per-clicks] and click-through rates are recovering."

Google (GOOG) shares have been lagging year to date, losing 4.31% in 2010. During the current trading session, GOOG has moved 1.04% higher to $595.17. One interesting historical fact about Google earnings is that there has been more downside risk when the company reports worse than expected results than there is upside gains when it beats estimates. When GOOG beats estimates the stock normally moves 4% higher, but when it misses, the shares, on average lose 10%. If you are thinking of stepping in ahead of this report, this is something that you need to take into consideration.

Wall Street analysts have a median price target of $692.50 on the shares. If GOOG is indeed going to reach this level, the company needs to beat estimates this afternoon and offer strong forward looking guidance. As a result of the stock's underperformance of late, the risk/reward appears favorable if the earnings report is stellar.

GOOG is trading at a forward P/E of 18.98, which seems reasonable considering the historical growth it has delivered. The fact is that over the last few months the buzz around Google has not been what it once was. Increased scrutiny by antitrust authorities as well as the company's pull out of China have been weighing on the shares.

This afternoon's report and conference call could turn the share price around in a hurry as long as everything is rosy and optimistic. Despite concerns, Google remains the preeminent technology company in the world, along with Apple (NASDAQ: AAPL). Paying around 19 times earnings to own the most innovative corporation on the planet seems reasonable.

On the charts, it appears that GOOG bottomed out in February, and the near term trend is up. One firm that is very bullish on the stock is Janco Partners, whose analysts have a price target of $700 on the shares. In a research report, they wrote that their price target is based on 22x their 2011 earnings estimate of $31.40. According to Janco Partners, "we believe that Google has a strong fundamental outlook driven by a dominant competitive position in paid search advertising and incremental growth opportunities from display advertising and mobile search/display advertising over the next few years."

Traders and investors should take a simple and straightforward attitude towards Google right now. If they beat estimates and offer strong guidance, buy it. If the company disappoints, the best thing to do is to wait and see how the stock reacts next week. If it doesn't budge, this is likely a bullish indicator that the Street is discounting this quarter and still believes good things are coming in upcoming quarters. In this case, the stock remains a BUY. If GOOG pulls back, however, look for areas of support (possibly around $550-$560) before making an entry on the long side.