While Google Inc. (NASDAQ:GOOG, NASDAQ:GOOGL) remains the undisputed king of search engines in the Western Hemisphere, it’s not as if it has been able to leverage its size and market share to the market’s satisfaction of late.
Indeed, those who have owned Google stock for a year or more know all too well that the company has fallen short of earnings estimates in each of its past four quarters, and has failed to meet estimates in six of the past eight quarters.
Almost needless to say, these same investors are likely to already be sweating the Google earnings news due after the closing bell rings on Thursday.
Is there any chance last quarter was the beginning of better results for GOOGL? Moreover, what specific initiatives are helping or hurting the cause?
Google Earnings Preview
As of the latest look, the web search giant is expected to post earnings of $7.12 per share of Google stock on $18.46 billion in revenue. Those outlooks are 18.5% and 9.5% better (respectively) than the year-ago figures of $6.01 per share and $16.86 billion, extending a multiyear string of fairly reliable growth in the top and bottom line.
If GOOGL meets those estimates, it will be an encouraging end to an otherwise discouraging year … at least in terms of the rhetoric.
Although the recent Google earnings reports have been disappointing relative to estimates, it’s a bit of a misnomer to say Google has done as poorly as the headlines would have implied. The company is on pace to post a profit of $25.77 per share of Google stock, up 17.4% from 2013’s bottom line, and Google is projected to boast of top line of $66.4 billion for fiscal 2014, up 11% from fiscal 2013.
So what, pray tell, were the media and the more vocal pundits worried about for the bulk of 2014?
Deterioration of the cost-per-click of the ads that Google and all its competitors sell, primarily driven by the ongoing consumer shift from computers with large screens and easy-to-see ads to smartphones and tablets, where clicking on an ad is difficult at best.
Although most of these companies — and Google in particular — were more than able to offset the impact of lower prices on a per-click basis simply by selling more ad space at lower prices, that per-click price downtrend is still a cause for alarm. After all, it’s Google’s bread and butter, making up 89% of its total revenue. Since all big trends start out as small ones, falling per-click prices are certainly something to watch.
Then again, some recent data suggests Google has even worked its way past the trend of weaker advertising prices.
Things for Owners of GOOGL to Think & Ask About
Clearly GOOGL is a multifaceted company with a lot of moving parts and plenty for Google stock investors to think about. But some moving parts are more important than others.
Here are the five themes and initiatives that could push GOOGL shares around before and after the Google earnings announcing on Thursday.
- Google Fiber: It’s the least-touted venture on the company’s plate right now, though probably the most important one in terms of potential future revenue. Google Fiber, which is about 100 times faster than typical broadband connectivity, is currently available in three locales, though the company announced on Tuesday morning that four more U.S. cities will be getting the service soon.
- Capital spending: While Google may serve up some brilliant technology, those advances don’t come cheap. And, already-heavy spending could get even heavier in 2015, according to Janney Capital Markets. The firm’s analysts believe capital spending from Google could grow 50%, to $11 billion, this year.
- Cost per click: As was noted already, the amount of revenue Google was collecting each time an individual clicked on one of its ads had been falling for several quarters. That trend may have been halted, however. Not that one quarter makes a trend, but as an Adobe report indicated this week, the smartphone-loving public is finally starting to click more ads on their larger-screen smartphones and tablets. The Adobe report suggested per-click rates were up 8% in the fourth quarter for Google. Another quarter of higher cost-per-clicks prices and stronger click-through rates could ease a great deal of worry for GOOGL shareholders.
- Google Wireless: If there was any doubt Google was getting all the way into the wireless game, it was erased last week when the company announced it had struck deals with T-Mobile and Sprint to use their towers to provide a Google-branded smartphone service.
While it’s unlikely the Google earnings call will offer all the critical details on all four of these matters, at least some details should be served up … at least in the Q&A segment of the call.
Even so, these four themes are going to be the focal point for well after the earnings news is posted.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
