Google (GOOG) Q1 Game: Step Right Up and Place Your Bets!

In a few hours, we'll get the answer to the questions that have obsessed Google (GOOG) watchers for the past three months:

Has Google's US click and revenue growth hit a wall, in which case the stock will plunge into the $300s?

OR

Has Google managed to reduce click growth without hurting revenue growth, in which case the stock will blast into the $500s?

By now, we have all the information we're ever going to get, so it's time to place our bets. Read our quarter preview, and you'll get a good overview of what everyone knows. Then step right up and enter your predictions for the following in the comments below:

• Net Revenue ($3.61 billion consensus)
• EPS ($4.52 consensus)
• Opening stock price Friday morning

To kick things off, we'll place the first bet (for pride, honor, and bragging rights, of course--SAI's servers are not located in the Caymans or another region that smiles upon gambling. If you're insistent on betting cash, however, there's always E*Trade). We think Google will meet or exceed the recently reduced consensus, sending the stock higher. We'll give you our exact predictions below, but first, here are the four factors that influence our thinking.

1. The current consensus reflects a meaningful slowdown (but not collapse) in US revenue
2. We think Google's click growth could hit a wall without hurting revenue growth (see below)
3. Several SEMs reported strong spending through the quarter.
   
4. Eric Schmidt knows what the numbers are and we found a late-March remark encouraging.

Let's take these one at a time:

CURRENT CONSENSUS REFLECTS A US SLOWDOWN

The current consensus assumes a slowdown in US revenue from 40% in Q4 to about 25% in Q1. We therefore think a meaningful deceleration is already in the consensus and stock.

CLICKS DO NOT EQUAL REVENUE

Assuming the Comscore data is right, there are two ways Google's click growth could stop without affecting revenue growth:

1. Price increases on remaining clicks (well-discussed), AND
2. The elimination of mostly low-price, low-profit clicks.

The first of these has been discussed ad infinitum. We do not believe price increases could completely offset the kind of click deceleration Comscore is reporting. We do believe, however, that Google could be making a conscious choice about which clicks to eliminate. We suspect that senior management does not want to see the stock at $350, so we therefore think it's possible that they have mostly eliminated low-price clicks. In this case, the revenue impact would not be severe.

SEVERAL SEMs REPORTED STRONG SPENDING DESPITE CLICK DECELERATION

One big SEM--Efficient Frontier--acknowledged a major slowdown in Google spending this quarter. Others, however, said spending remained strong. These mixed reports suggest to us that Google's spending did not likely collapse in Q1.

ERIC SCHMIDT KNOWS THE NUMBERS AND IN LATE MARCH STILL SEEMED SANGUINE

On March 18th, Eric Schmidt said the following:

"It's too early to say if there's (already) been any specific impact [from a crappy economy] but if there were I don't think it would be much," Schmidt told reporters at a briefing during a visit to Sydney.

This was more than two months after the reported click slowdown. If Google had actually been smashed by a weakening economy, we don't think Schmidt would have been so upbeat so late in the quarter.

BOTTOM LINE

Putting all this together, we think it's likely that Google's quarter was fine. Not great, but fine. We therefore think Google will likely meet or exceed the reduced consensus and that the stock will rise.

Here are our specific bets:

• Net Revenue: $3.61 billion (consensus)
• EPS: $4.75 (vs. $4.52 consensus)
• Opening stock price Friday morning: $490

There. We've stuck our neck out. Now it's your turn!

See Also: Google Q1 Preview (LIVE ANALYSIS AFTER CLOSE)