Google is scheduled to release its next earnings report on Thursday after closing bell, marking new Chief Financial Officer Ruth Porat’s first report. The search giant is expected to post strong results, although some data points during the second quarter were mixed.
What to expect in Google’s earnings report
Consensus estimates suggest Google will post adjusted earnings of $6.70 per share on $17.7 billion in revenue. Net revenue is expected to be $14.3 billion, while EBTIDA is expected to be $6.9 billion.
Cantor Fitzgerald analyst Youssef Squali and his team noted a number of mixed intra-quarter checks for Google. For example, SEO IgnitionOne reported that U.S. Search ad spend increased 22% year over year during the quarter, marking a slight deceleration from the first quarter’s 26% increase. That’s still a solid increase from the fourth quarter’s 11% growth rate, however.
Also Google’s share of Search spend rose to 75.5% of the market in the second quarter, compared to the previous quarter’s 73.1% and the fourth quarter’s 73.7%. The search giant reversed the previous market share loss that were said to be the result of Yahoo and Bing’s Enhanced Campaigns launch.
One problem Google is facing, however, is that the same report suggested that advertisers are still pulling out of Google Partner Networks because of declining click-through rates. The Cantor Fitzgerald team thinks Google’s O&O properties will offset by showing strong growth just as they did in the first quarter. Another negative data point for Google in the second quarter was data from comScore which indicated that Google’s share of the U.S. explicit Core market declined to 64.1% in May compared to 64.4% in March and 65.4% in December.
Currencies are expected to be a slight tailwind for Google’s earnings report and most other tech companies’ reports as well. The Cantor Fitzgerald team expects about a $140.1 million tailwind for Google’s revenue and a positive 6-cent per-share impact on earnings as a result of the slight weakening in the U.S. dollar against foreign currencies.
Trends to look for in Google’s report
Investors will also be keeping an eye on paid clicks, cost-per-click and traffic acquisition costs. RBC Capital Markets analyst Mark Mahaney and his team noted that first quarter paid clicks increased 12% year over year, marking a slight deceleration from the previous quarters. They’re expecting a 14% growth rate in the second quarter.
They’re expecting cost-per-click to be sequentially flat and an increase of 10 basis points in traffic acquisition costs for each segment. They want to see a non-GAAP operating margin of 39.6% due to continued pressure from the increase in revenues from Google’s Licensing and Other segment, which comes with lower margins.
The RBC team also wants to see about 18% growth in organic ad revenue excluding foreign exchange.
