All Eyes On Google This Week

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Google, whose stock is down 45% this year, announces third quarter financial results tomorrow, and Silicon Valley will be watching. Analysts expect revenues of a little over $4 billion and EPS of $4.79 – and most have price targets for the stock, which closed yesterday at $363, to bounce back up to the high 500′s.

For now, the big factors affecting Google are the strengthening dollar (half their revenue is outside the U.S.) and general pessimism about the advertising market moving forward. There are also concerns about the intense regulatory scrutiny of the Google/Yahoo search deal.

Beyond this quarter, though, no one really has any idea how Google will do, and that uncertainty is what’s driving Google’s stock down. A declining stock market means less consumer spending, which then means less advertising dollars flowing as well. But what isn’t certain is how that will impact Internet advertising, which is still taking share from more traditional ad spending.

Citi analyst Mark Mahaney, who’s targeting Google stock at $590, thinks Google is in a good position to weather a storm: “GOOG is the market share leader – and is gaining share – in arguably the most dynamic part of Internet advertising – search, which appears to be less impacted by the current macro economic environment,” he said in a recent preview report for the fiscal quarter. He also sees strong growth potential for non-search ads through YouTube and DoubleClick. ComScore is reporting that the growth in the number of searches on Google accelerated in September.

Google’s financial health is a key driving factor in the Silicon Valley ecosystem – if they’re strong and keep buying companies, venture capitalists will keep funding new and existing startups. If Google and others slow acquisition activity, venture dollars will dry up too. So keep hoping people all over the world continue to click on those search ads – your startup may depend on it.

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