North America

Earnings Preview: Google Q2 2015 (GOOG) (GOOGL)

By: Craig Bowles

Overview:

Google, Inc. (GOOG) (GOOGL) is scheduled to report 2Q2015 earnings after the close of trading on Thursday, July 16th.  Results are usually available minutes after the closing bell with a conference call webcast at Google Investor Relations slated to begin at 4:30 p.m. EST. The S&P E-Mini, NASDAQ 100 E-Mini futures contracts and PowerShares QQQ (QQQ) tend to see active trading off the results.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): The current Street estimate is $6.70 (range $6.04 to $7.29) (Source: Yahoo! Finance). Google traditionally reports a value for Non-GAAP Earnings Per Share that is comparable to consensus. Consensus was for $6.82 three months ago.
  • Revenues: Revenues Ex-Traffic Acquisition Costs compares to consensus forecasts for revenues. The value is determined by taking the Revenue figure and subtracting Traffic Acquisition Costs. The estimate for Revenues (Ex-Traffic Acquisition Costs ‘TAC’) is $14.347 bln. (Source: Estimize)
  • Paid Clicks Q/Q Change: Q1 was -1%, the same as last year which was followed by 2% in Q2.
  • Cost per Click Q/Q Change: Q1 was -5%. Last year’s Q1 was -9% followed by 0% in Q2.
  • Google shares are trading at 27x earnings, 5.5x sales, 3.4x book value, and 15.2x cash flow. While these appear to be lofty valuation measures, current readings are similar to the company’s 5-year averages.
  • Analysts remain bullish on Google with 23 Buy, 8 Hold, and 0 Sell ratings (source: Analystratings.net).
  • Insiders sold 976,232 shares over the last three months and 2,915,331 shares over the past year (source: NASDAQ.com). Google has not done a stock buyback since 2010.
  • Google shares have a 1-day average price change on earnings of 6.31%. Options are pricing in an implied move of 3.98% off earnings.

Recent News

  • 07/10: Rosenblatt Securities said Google won’t buy Twitter (TWTR). “Large deals of Twitter’s market cap range have been avoided,” according to a post by InvestorsDaily.com.
  • 07/10: Credit Suisse maintained an Outperform rating on Google and increased the price target to $700 from $690. The aggregated revenue contribution from YouTube and Google Play has increased to 15% in 2015 from 4% in 2010, and analysts expect it to reach to 24% by 2020, according to a post by TheStreet.com.
  • 06/29: The Supreme Court rejected Google’s appeal to overturn a java copyright ruling that could put Google on the hook for roughly $1 billion in licensing fees, according to a post by Benzinga.com.
  • 06/24: Google hasn’t responded to EU antitrust charge and the 10-week deadline is now up, according to WSJ.com.
  • 06/23: Google founder Sergey Brin and wife Anne Wojcicki are divorced, according to a post by BusinessInsider.com.
  • 06/23: Google is funding a plan to bring free Wi-Fi to NYC, according to a post by BusinessInsider.com.
  • 06/23: Google unveils a free music streaming service with ads, according to a post by CNBC.com.
  • 06/19: Rosenblatt Securities maintains a Buy rating on Google and said the incoming CFO Ruth Porat “will put her mark on Google quickly” and likely debut in her new role during the company’s Q2 earnings conference call in mid-July, according to a post by InvestorsDaily.com.

Technical Review

Google shares have consolidated since doubling between the summer of 2012 and early 2014 to around $600. $600 was retested in the summer of 2014 but found resistance more recently at $580. Support has been coming in at $540 going into the earnings season. (Chart courtesy of StockCharts.com)

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Summary

If the strong dollar is expected to weigh on earnings this quarter, Google should be a good tell. Google has missed earnings estimates the last six quarters but the stock’s reaction has varied and last quarter’s miss was only by 3c. Paid clicks bounced back last year after a similarly weak Q1. Estimize consensus is for a Non-GAAP EPS of $6.76 on revenue ex-TAC of $14.384 bln.

 

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