Analyst Insight: Morgan Stanley Sees Continued Recovery In Online Advertising For Google (GOOG,MS)

Morgan Stanley analysts see continued secular recovery in online advertising for Google (NASDAQ:GOOG) based on strong Q2 revenue.

Analysts Mary Meeker, Scott Devitt and Joseph Okleberry said, ""The strength was driven by outperformance in both Google websites and network partners. However, the company invested heavily in R&D and G&A which drove adj. EBITDA margins lower (59% vs. our / street estimates of 62% / 61%). Investments were aimed at the following growth areas: 1) search monetization; 2) display; 3) mobile; and 4) apps. Google also ramped advertising spend behind Chrome, Nexus One, and new advertisers acquisitions. We are raising our net revenue estimates due to the strong growth in paid clicks / CPC. In C2010E / C2011E, we are modestly reducing our operating EPS estimates to reflect increased investments. But for C2012E and beyond, we are increasing our earnings outlook as we expect Google's investments to generate positive ROI.""

The bank sees fiscal 2010 EPS of $24.68 and fiscal 2011 EPS of $27.12.

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