Google first quarter spending in focus

A raft of US technology giants will release quarterly earnings tonight in the wake of Facebook’s Q1 results on Wednesday which saw an enormous rise in sales wiped out by an unexpectedly voluminous surge in spending.

Google’s earnings are likely to draw the most attention on a night in which Amazon, Microsoft (and Starbucks) will also release earnings.

On Wednesday Facebook reported solid progress in its drive towards walling as many Internet users into its properties as possible by investing in what it hopes will be user experiences that crush rivals.

FB’s Q1 saw another wave of mobile-only monthly growth take the amount of users who access the site from their phones or tablets only closer to the 50% threshold.

That provides some backing for FB’s spending, as the network closes the gap with digital advertising arch Google.

Even more so after Google’s Q4 2014 net revenue growth slipped below 20% for the first time in several quarters, following the loss of a default search contract from Mozilla Corporation, maker of the Firefox browser.

The Click

The main metric investors have tended to use to monitor Google’s advertising pulse has been cost-per-click.
CPC has been flat for about a year.

But that still represents an improvement, after margin erosion from competition pressed CPC lower for years.

The effect of Google’s reduction of available clicks in the last couple of quarters will be closely eyed.

And so will an increase in the number of mobile searches, given the rise of smaller screen use.

For Google at least, mobile browsing growth has been concomitant with lower-margin advertising revenue.

Google’s recent well-publicized efforts to provide enhanced visibility to mobile versions of Internet sites, are one way it has tried to increase the operating strength of online revenues.

Even if the method is working though, it’s unlikely to have encouraged any material increase in ad sales as yet.

Net of costs

With Facebook having cornered 8% of the $145bn global digital-ad market in 2014, from below 6% in 2013, and Yahoo! pushed into fourth place by Microsoft, online ad growth will be eyed intently by Internet company investors tonight.

Google’s global digital ad share was 31.5% in 2014, having been stuck a fraction above 31% for at least two years.

Google’s gross Q1 revenue is seen rising 13% to $17.43bn, according to an average of analysts’ forecast compiled by Thomson Reuters.

In Google’s case a more sensitive test of revenue strength may be possible by stripping out ‘syndication’ costs—that is, payments to other firms to encourage users onto Google’s search assets.

This ‘cleaner’ revenue may come in 15% higher at $14bn, according to consensus.

Underlying Earnings per Share during the first quarter are seen at $6.44, leaving out certain expenses that are customarily excluded by Internet and technology companies.

Reported EPS is likely to be $5.29, according to average forecasts.

Hiring spree may ease after CFO hire

Like Facebook, Google’s spending during the quarter will also draw increased scrutiny, with the search giant’s own expenditure hikes of late driven by a swell in hiring, as it took on thousands of employees in the last six months.

Comments from GOOG’s recently hired CFO Ruth Porat, formerly of investment bank Morgan Stanley, are likely to be assessed during the post-earnings conference call tonight, amid hope she may have a better formula on spending, and speculation she may instigate a formal or one-off return of cash to investors.

Google had about $64bn worth of cash and securities on its balance sheet by the end of 2014, by the far the higher balance in the latter category.