Merrill Lynch has raised its second-quarter revenue and earnings-per-share estimates for Google, while maintaining net revenue and earnings-per-share estimates for Yahoo. The company maintained its “buy” rating on Google and its “neutral” rating on Yahoo.

Published: 05 Jul 2006

Merrill Lynch has raised its second-quarter revenue and earnings-per-share estimates for Google, while maintaining net revenue and earnings-per-share estimates for Yahoo. The company maintained its “buy” rating on Google and its “neutral” rating on Yahoo.

According to Reuters, the basis of raising the estimates on Google is “strong search query trends and currency benefits”. Also, the brokerage expects second quarter advertising revenue growth for Google to continue to be significantly higher than its peers, including Yahoo and MSN-Microsoft.

“In a research note, Merrill Lynch said it expects Google to continue to remain competitive for distribution partners and potentially gain search share over the next couple quarters, helped by toolbar deals with Dell and Adobe. Subsequently, the brokerage raised its earnings per share estimate for Google for the second quarter to $2.18 from $2.10, excluding stock option expenses, and revenue estimate to $1.64 billion from $1.59 billion. However, the brokerage left estimates unchanged for Yahoo with net revenue at $1.15 billion and earnings per share at 11 cents, which includes stock option expenses,” it reported.

“We believe Google will maintain its advantages in search innovation and ability to sign affiliates through enhanced monetization (toolbar deals with Dell and Adobe) which should lead to further share gains in 2H06,” wrote analyst Justin Post. “Google’s above-industry revenue growth will continue to overshadow mounting expense pressures, in our view.”

The report added: “Although it expects a strong second quarter from Yahoo, Merrill Lynch believes the stock could remain range bound after the quarter based on its view that the results are being priced into the stock. Merrill Lynch said it does not expect Yahoo to raise guidance for the remainder of the year based on expected caution heading into the slower third quarter and a new product launch in the fourth quarter.”