Google (GOOG) will report Q3 numbers after the bell on Thursday, Oct. 17. And as always, Google earnings will be closely watched as an indicator of how online advertising sales are looking for major Internet stocks — from AOL (AOL) to Yahoo (YHOO) to Facebook (FB).
The Google earnings outlook is mixed. Based on the 26% gains this year for GOOG stock, there’s a good case to be made for optimism … but given the fact that those returns were all front-loaded and that the stock has basically moved sideways since Google earnings for Q1 missed on the top line, there’s are no guarantees for GOOG investors.
And if Google earnings miss the mark, it could have serious repercussions for investors.
Google Earnings Preview
The main driver of Google earnings remains its core advertising business, and “cost per click” metrics remain in focus across the online ads biz. The sad reality is that advertising rates are moving lower for Internet stocks across the board, and this has weighed on results lately.
This ad metric was the worst part of Q1 numbers that ended the big GOOG run to start the year, and also was the culprit behind another disappointing Google earnings report a few months later.
Past performance is no guarantee of future results, but it’s safe to say that if Google earnings miss the mark on bad ad numbers for the third time in a row, investors won’t be able to shrug off this risk.
Now, there are alternative revenue streams including a push into hardware with the Nexus tablet, Chromecast streaming video device and the highly anticipated Moto X that is meant to deliver on the $12.5 billion Motorola buyout.
It’s also worth noting that Google stock has suffered from a “lumpy” capex program, with spending on doubling last quarter thanks in large part to a huge data center purchase. Simply pulling back on the reins here could affect the final earnings per share tally substantially.
But the primary item to watch remains the cost per click rates and overall revenue as a result of core advertising segments.
Because if Google doesn’t have as reliable growth engine in ads anymore … it better ramp up its other efforts in a hurry.
Related Reading on GOOG
- More on Google earnings and how capital expenditures might affect them. (CFO Journal via WSJ)
- Why I advised not to give up on GOOG after July earnings. (The Slant)
- FWIW, right before earnings Credit Suisse reaffirmed its buy rating and $1,000 target. (Ticker Report)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.