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Google's second quarter results: What to watch

Google's second quarter results are widely expected to be in line with expectations, but there are a bevy of strategic wild cards to watch. To say Google has multiple balls in the air would be a vast understatement.
Written by Larry Dignan, Contributor on

Google's second quarter results are widely expected to be in line with expectations, but there are a bevy of strategic wild cards to watch. To say Google has multiple balls in the air would be a vast understatement.

Wall Street is expecting Google to deliver second quarter earnings of $7.86 a share on revenue of $6.55 billion. Gross margins are expected to be 77.06 percent. Analysts are increasingly worried about Google's spending plans and those concerns aren't likely to dissipate.

However, Google+, the company's new social network, is likely to distract analysts with a nice shiny object. Google+ will be a key milepost to watch. Here's a look at the key items in Google's second quarter report.

  • Paid search health. Despite various product pyrotechnics Google lives and dies by paid clicks and the growth is expected to decelerate. Jefferies analyst Youssef Squali said U.S. demand, Europe and economic concerns are wild cards.
  • Will Google+ be the company's unifying theme for diverse applications? Google has a little bit of everything and Google+ could be the glue. Any indication of the grand plan will be appreciated by analysts. Deutsche Bank analyst Jeetil Patel said:

Google has historically been more of a collection of apps than a platform (Android aside). Google+ may enable the company to become more of a platform, as it integrates email, chat, RSS readers and news into a unified platform and takes social features across Google apps. If successful, this deepens Google’s direct relationships with users, providing more engagement and higher long-term barriers to its business.

  • Google+ metrics: Initial signs are that the search giant's social networking site is a hit and has amassed millions of users in short order. Google could reveal a few concrete figures on Google+.
  • Social networking ROI. The larger question for Google+ is what the end game is. Is it more engagement? Business ads? A way to grow Gmail? Analysts are likely to press on the issue.
  • Google's spending and hiring plans. Wall Street has been downright queasy about Google's hiring practices and capital spending. What does the talent war mean for Google's costs and profit margins? Morgan Stanley analyst Scott Devitt expects profit margins to fall and revenue growth from new businesses won't be able to pick up the slack.
  • What's the Android IP plan? Google is in a battle with Oracle over Android royalties and lost out on bidding for Nortel's patents. Management will need to address the intellectual property plan at some point because it will be material to Android's success.
  • Color on Google Offers. Google is rolling out its Groupon killer in New York and the Bay Area. What's the upside here and monetization goals.
  • Antitrust operations. Executives aren't going to say anything about the Federal Trade Commission investigation, but you do wonder how Google will operate under regulatory scrutiny.

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