Google's earnings: Search strong; Nexus One weak; Weighing China
Google's first quarter results are expected to be strong as paid click data points to revenue gains for the search giant. However, Google is likely to spend little time talking about the Nexus One, which appears to be a flop.
Wall Street is expecting Google to report first quarter earnings of $6.56 a share on revenue of $4.93 billion. According to Thomson Reuters, Google's second quarter revenue is expected to be flat with the first quarter.
Piper Jaffray analyst Gene Munster expects Google to report revenue ahead of expectations with some disappointment over Nexus One. It's notable that Munster focused on the Nexus One when it's a rounding error at best to Google's overall financial picture. Munster said in a research note:
While we view Google's Nexus One as the most advanced Android phone available to date, we believe that based on checks from Piper Jaffray analyst Mike Walkley and data released by mobile analytics companies, the phone has not seen the same success in the market as the Droid and other alternatives. Previously we expected the phone would ultimately reach carrier stores for sale, which has not yet happened. Our prior estimate of 350k Nexus One's sold in Q1 appears aggressive and we believe the number may be closer to 160k for Q1; this represents a $100 million reduction to top-line revenue, but a $0.06 improvement to earnings as we expect Nexus One to carry a lower operating margin than Google's core search product, for which we increased estimates.
The rest of the analyst pack focused on Google's prospects as Internet ad budgets improve. Deutsche Bank analyst Jeetil Patel said that expectations for Google are relatively low. Patel wrote in a research note:
Our checks indicate that the 2H 2009 online ad recovery has continued into 1Q 2010 and both the search and the display business at Google have shown strong traction. On the search side, CPCs are better-than-expected (especially in the US) and query volumes remain healthy. Further, Google continues to gain share in search, especially benefiting from the transitory period of the Yahoo!-Microsoft deal. Google’s display ad business in 1Q should benefit from both easier comps and a renewed interest in display ads, especially by the auto sector.
Among the key items to watch:
International revenue and the impact of the China evacuation. Patel said that international revenue is expected to surge 19 percent from a year ago. Comments about the plan for China will be watched closely. Jefferies analyst Youseff Squali said:
Even though Google continues to serve mainland China via its Hong Kong site, we believe this strategy is not sustainable longer-term, and expect advertisers to defect to Baidu. We note that Google is likely to maintain some level of revenues from China considering that its .com platform remains attractive for Chinese exporters looking to reach foreign buyers.
What's the plan for Nexus One? Like Munster, Patel is looking for commentary on the flagship Android device. What will distribution look like in a quarter. What's the plan for mobile search? Expect management to spend a good deal talking about the prospects for mobile search. Also watch the impact of Android devices in driving mobile queries.
YouTube monetization. Making money from YouTube is always a hot topic, but a bevy of analysts have noted that there are more display ads on the video site. Is Google near or beyond break even on YouTube?