From a performance standpoint, Google (GOOG) has looked pretty good for the past year. The company has beat earnings estimates three times in that period, and shares are up nearly 60% — including 18% since its last report to beat the S&P 500’s 8%.
Whether that’ll continue for another three months could very well hinge on what Google reports after the bell Thursday. For the second quarter, the analyst consensus is for Google to earn $10.79 per share on revenues of $14.42 billion.
Long-term, there’s definitely many reasons for investor optimism. Google is a top player in some of the biggest megatrends, like video (YouTube) and mobile (Android), and has other standout assets like Gmail, Chrome and its huge, cash-generating search business.
But GOOG might waver in the near-term thanks to a few issues, including money-losing Motorola.
On the upside, Google plans to spend up to $500 million in marketing for the new Moto X devices. And yes, major carriers including AT&T (T), Verizon (VZ), Sprint (S) and T-Mobile (TMUS) have lined up to sell the phones.
But will it be a hit? Or will Google face the same difficulties that other phone markers have faced, such as Nokia (NOK) and BlackBerry (BBRY)? Keep in mind that in the prior quarter, Motorola shipped only 2.3 million phones, which is a mere 1% of the global market.
Success or not, though, Moto X won’t really factor into the upcoming report, making it likely Google will still see red from the division.
Investors also will want more details on various other projects at Google. One involves the buzz that the company plans to offer an Internet TV service that will provide traditional programming. GOOG does have the tech chops and capital to make this a reality, but the problem is that it’s a maturing business, putting the onus on Google to convince customers why they’d want to use Google TV vs. other offerings in the market, and forcing Google to delve into the increasingly crowded marketplace for content licensing. And, in addition to entrenched competitors like Netflix (NFLX) and Hulu, Google will be contending with other major companies like Intel (INTC) and Apple (AAPL) with eyes toward entering the market.
At the same time, Wall Street will also want to get updates on recent product launches. Some include revamps, such as for Maps (especially in light of the $1.1 billion acquisition of Waze), as well as new offerings like “All Access,” which is an alternative to Pandora (P) and Spotify.
To its credit, Google’s core business looks healthy, but a valuation of 27 times earnings inflated by GOOG’s steady 30% year-to-date run would imply that’s already baked in. So if Google does miss on expectations, we could very well see a pullback.
Long-term investors already holding can rest easy, but traders have every reason to exercise caution tomorrow.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.