Google's second quarter earnings: Your cheat sheet
Google's second quarter is expected to bring a bevy of moving parts such as the strategy for China, currency fluctuations, business in Europe and comments about emerging businesses such as Google TV and Android.
Overall, the company is expected to report second quarter earnings of $6.53 on revenue of $4.99 billion. Analysts are expecting a solid quarter courtesy of strong performance in the retail and finance sectors. To some degree, Google is a barometer on the overall economy---or at least the ad spending associated with various industries.
Among the items to watch:
Advertising demand: Analysts generally expect a healthy advertising market. Jefferies analyst Youssef Squali said:
Our channel checks suggest that marketers' appetite for search advertising remains strong, with Google being the primary beneficiary. The momentum in e-Commerce continues in the US and the UK, with UK online ad budgets up double digits in the quarter, with large retailers running aggressive promotions ahead of a seasonally strong July, and FIFA World Cup.
Investment, hiring and acquisitions: Google is likely to maintain its posture that it is investing for the future. Stifel Nicolaus Jordan Rohan sets the scene:
Our discussions have revealed that Google continues to invest in engineering, product development, and basic research as it prepares for a future increasingly focused on mobile computing. This means hiring and acquisitions abound. We have heard that as many as 30 targets are currently in some stage of dialogue with Google. Most of these companies are small and, other than some key technology, are not likely to change the long-term trajectory of earnings growth. Others, like ITA, are more significant and face government review and scrutiny.
The China strategy: Google got a content license in China, but its strategy may be a bit hard to follow. Google's Google.cn domain will point to Google.hk. Piper Jaffray analyst Gene Munster writes:
We believe the landing page strategy for Google.cn adds one more complication to Google's user experience in China. We expect every step added to the search process will ultimately cause Google to lose some users; however, it is difficult to determine how many users might not be willing to click on a landing page image before beginning a search. We continue to believe Google will have a presence in China, but expect intermittent turbulence in Google's relationship with the Chinese government.
Google TV: Intel CEO Paul Otellini talked up Google TV and the potential effect on sales of its Atom chip on the company's earnings conference call. Otellini said:
The new growth in Atom this year is going to be in embedded and in products like the Google TV product that were launched last month. We didn’t talk about that in the last conference call because it wasn’t announced yet, but I can tell you that a number of companies are now moving towards production on Atom based television, set-top boxes, DVD players and so forth around that particular construct. And to me that is one of the bigger things to watch for the holiday season as those products break market and see what happens.
It'll be interesting to see what Google execs say about Google TV.
Nexus One zeroes out: Rohan noted that Nexus One revenue is headed to zero. Analysts have tweaked estimates accordingly. What did Google learn from its Nexus One experiment?
Europe's health: Like every other tech company on the planet, Europe's economy is a big worry spot.