After five consecutive misses on the quarterly earnings front, Google Inc. (NASDAQ:GOOGL, NASDAQ:GOOGL) already has investors a little concerned headed into Q1’s report due after the close on Thursday.
However, in the shadow of disappointing first quarter results from rival Yahoo! Inc. (NASDAQ:YHOO), GOOGL owners may be downright worried about the upcoming Google earnings news.
To be fair, Google may be one of the market’s most successful-yet-habitually-disappointing companies, logging six straight quarters of rising year-over-year per-share profits despite falling short of expectations in the past five quarters. Still, for investors, success is all relative.
What exactly does the market expect from the Google earnings report? And more importantly, what are the key factors driving (or not driving) growth for the search giant from here?
Google Earnings Outlook
As of the most recent numbers, analysts collectively expect Google to post earnings of $6.60 per share on $17.5 billion in revenue. That’s a better bottom line than the $6.27 per share of GOOG the company earned in the first quarter of 2014, when it drove $15.42 billion in sales.
It’s not a perfect apples-to-apples comparison, but the fact that Yahoo did poorly in the first quarter doesn’t bode well for GOOG. Both companies compete for clicks and also rely heavily on web-based advertising revenue.
Yahoo! posted a profit of 15 cents per share, falling short of the 18 cents per share of YHOO experts were expecting. Revenue of $1.04 billion for the first quarter was a little shy of $1.06 billion experts were expecting, and was well off the $1.08 billion Yahoo managed to generate in the same quarter a year earlier.
The slide in earnings and revenue came despite Yahoo’s 21% improvement in paid search clicks, with its cost per click rising 3%. Traffic acquisition costs quadrupled on a year-over-year basis.
Analysts at Wedbush forecast a 16.5% improvement in paid search clicks for Google, though the same forecast suggests Google will see a 2.3% dip in its cost per click despite Yahoo’s modest increase in click costs.
3 Things for Owners of Google Stock to Mull
While the numbers are certainly a crucial part of the story, they’re not the only part of the story that current and would-be owners of Google stock will want to embrace. Three major factors could affect the price of GOOG in the foreseeable future, and may or may not come up during the Google earnings call.
In no certain order…
1. Mobilegeddon: On Tuesday, Google unveiled changes to its mobile search algorithm that specifically favors websites that are optimized for mobile device viewing. The end result is a better and more relevant search experience on small-screened phones, pushing some sites higher in search results, and some sites lower. This could potentially alter which ads are displayed and rather or not they’re clicked. As such, the updated algorithm will impact revenue. The question is, will it hurt or help?
2. Android Wear: With all the hype that’s been generated by the recent unveiling and pre-ordering of the Apple Inc. (NASDAQ:AAPL) smartwatch, GOOG’s own smartwatch — arguably a more functional product — has been largely overlooked. Part of a line of products that utilizes a so-called Android Wear platform, the Google watch is rumored to support WiFi connectivity … which means it operates would work even without being linked to a smartphone.
3. Wireless: It’s not exactly news; GOOG Vice President Sundar Pichai announced it at the Barcelona Mobile World Congress in early March. But, the buzz is that Google could be officially unveiling and perhaps even selling its wireless service by the end of the week. Although not at immediate threat to the likes of Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T), given enough time, Google Wireless could become a problem for each while also becoming a true profit center for Google.
Granted, none of these matters will affect the Google earnings news to be reported after Thursday’s closing bell rings. Thursday’s numbers are already history though. Once Q1’s numbers are posted and the response to them is made, however, the market will immediately begin factoring in the “here and now.”
Bottom Line for GOOG
Not that it entirely matters to true long-term owners of GOOG and GOOGL, but for traders who are explicitly looking to play the short-term response to the Google earnings announcement, know that the market’s knee-jerk reaction to the news in recent quarters hasn’t always been the obvious one.
That is, an earnings beat doesn’t always guarantee a big gain, nor does a miss always lead to a sharp drop in the value of Google stock. A great deal of the post-earnings response is the result of the non-numerical comments and outlook given during the earnings call.
Whatever’s in the cards this time around, it’s sure to be worth watching.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
