Home Technology Google Inc (GOOGL) Direct Cost Growth To Outpace Revenue Growth

Google Inc (GOOGL) Direct Cost Growth To Outpace Revenue Growth

Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) is set to report its fiscal first quarter earnings on Wednesday, April 16. The search engine giant will subsequently hold a conference call at 4:30 p.m. EDT to discuss earnings. Wall Street expects Google to report $6.42 a share in earnings and $15.54 billion in revenues. Pivotal Research Group analyst Brian Wieser said in a research note that he will be closely watching how the company fares with advertising, excluding traffic acquisition costs. That is likely to be affected by Google’s cull of network partners since last year.

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Google’s ad revenue expected to jump 16%

Pivotal Research Group has a Hold rating on the stock with $580 price target. The research firm expects Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s operating margins to shrink further as the company continues to expand beyond paid search. Pivotal Research’s DCF-based price target reflects that the Internet company’s cash and absolute profits will continue to grow.


During the first quarter, Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s total ad revenue is estimated to jump 16%. The search ad revenue is likely to go up by about 10%, compared to an estimated 30% growth in display-related advertising. Wieser said other revenues, especially from Google Play, should continue to grow. But the increase won’t be anywhere close to the Q4, 2013 level that was amplified due to an accounting change.

Weakness in real, yen to affect Google’s earnings

The weakness in the Japanese yen and Brazilian real could also cause a modest headwind. Wieser expects Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s Q1 revenues to grow 19% YoY, ex-TAC. What’s more, Pivotal Research Group said that the direct cost growth will continue to be higher than the revenue growth as the company continues to invest in infrastructure related to its services and content. That should reduce margins by more than 2% compared to the previous year.

Pivotal Research said Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s net income from continuing operations for Q1 is likely to grow 7.3%, and 12.8% for the full year 2014. The research firm forecasts $5.15 in earnings per share.