Google Earnings Preview: What Wall Street's Saying

Updated from 12:22 p.m. to include thoughts from Topeka Capital Markets analyst.

NEW YORK (TheStreet) -- Google (GOOG) reports first-quarter earnings after the close, and all eyes will be on whether cost-per-click (CPC), a key advertising metric, will start to turn around.

Last quarter, Mountain View, Calif.-based Google earned on a non-GAAP basis $12.01 per share, generating $13.55 billion in revenue, excluding traffic acquisition costs (TAC). In a survey from Thomson Reuters, analysts expect the Internet search giant to earn $12.21 per share on $16.753 billion in sales, including TAC. Excluding TAC, revenue estimates were $13.41 billion.

Google (GOOGL) noted that cost-per-click, a key advertising metric, fell 11% year-over-year and 2% sequentially, but that paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 31% over the fourth quarter of 2012, and 13% sequentially.

For this quarter, analysts surveyed by Thomson Reuters are expecting Google to earn $6.40 a share on $15.52 billion in revenue, though that number likely includes traffic acquisition costs (TAC). Generally, analysts exclude TAC to drill down and get a truer number.

This will be the last quarter Google has Motorola Mobility dragging down its results, after the company sold Motorola to Lenovo for $2.91 billion in January. Though the company paid $12.5 billion for Motorola, it was able to keep the valuable patents in the deal, and also sold Motorola's set-top box business to Arris (ARRS) in 2012 for $2.35 billion.

Shares of Google were higher in Wednesday trading, gaining 2% to $547.29, ahead of the results, due after the close of trading.

According to eMarketer, Google accounted for 32% of all digital ad spending worldwide in 2013, up from 31.3% in 2012. The company is holding back Facebook FB in this arena, which had 5.8% of all global digital ad spend in 2013, up from 4.1% in 2012. According to eMarketer, the worldwide digital advertising market totaled $119.84 billion in 2013, and is expected to reach $137.5 billion this year.

Aside from the core results, analysts and the media will ask questions on some of Google's other projects, including the recent purchase of Titan Aerospace (which will help Project Loon), YouTube, Google Glass (which went on sale Tuesday) and perhaps Google Fiber, which is already in Kansas City, Austin, Texas and Provo, Utah, and is expanding to 34 additional cities in the near future.

Analysts by and large were positive going into the report, with several of them focusing on the company's product listing ads (PLAs), Google's newest advertising venture. Here's what a few of them had to say.

Jefferies analyst Brian Pitz (Buy, $700 PT)

"Ahead of Google's 1Q print on Wed., we are increasing our price target from $650 to $700 as we remove Motorola's operating losses from the model. We are also modeling the Class C dividend, which is functionally similar to a two-for-one stock split. For the qtr., traffic trends look solid and our proprietary Product Listing Ad (PLA) checks suggest marketers are continuing to invest heavily in PLAs."

"According to Kenshoo, 29% of marketers are allocating new, incremental budgets to support their PLA campaigns, and 83% of marketers find PLA performance to be on-par or better than traditional search ads. Given this kind of return on investment for advertisers, we believe Google likely benefited as retailers pointed people to their online stores. Interesting US movers include Rakuten (from #20 to #2), Sephora (#4,955 to #18), Marin (#29 to #19), Walmart (#10 to #7), and Aliexpress (Alibaba, #585 to #105)."

JMP Securities analyst Ronald Josey (Market Outperform, $725 PT)

"Google reports 1Q14 results on April 16 after the close and we expect it to report another strong quarter given continued strength across Search, Mobile, PLA's, YouTube, and Display, and the continued adoption of Android devices resulting in strong Licensing & Other revenue. Specifically, we'll be watching for: 1) O&O revenue growth, paid clicks, and CPC growth;
2) display share gains given continued upfront agency commitments and the upcoming NewFronts; 3) Google's evolving strategy around travel given its recent announcement with Room 77; and 4) Licensing & Other growth. We continue to believe Google is well positioned across most growth drivers on the Internet and that through Enhanced Campaigns, PLAs, and other ad innovations, Google is delivering upon its promise of cross-platform solutions. For 2014, we now project net revenue of $53.6 billion (+24% Y/Y), EBITDA of $26.7 billion (+18% Y/Y, 49.7% margin) and PF EPS of $27.75."

BGC Partners analyst Colin Gillis (Hold, $590 PT)

"March quarter results may prove messy related to three factors: 1) Motorola revenue and expenses being moved into discontinued operations. We expect this should result in a positive impact to earnings, as Motorola losses have been a drag on results. 2) The company has split its stock, resulting in a doubling of shares. This is a smaller impact but it may make the magnitude of any upside/downside look smaller (a ten cent earnings beat will now look like 5 cents, same net income just more shares). 3) March quarter results are seasonally weak and can be negatively impacted by higher tax rates at the start of the year, a negative impact on earnings. Finally, the trend of click pricing decline is likely to continue, with paid clicks growing 22% and click pricing down 6% in our estimate. We are positive on the pending sale of Motorola, and increase our price target to reflect the transaction, but we look to see if the stock pulls back on earnings."

FBN Securities analyst Shebly Seyraf (Outperform, $700 PT)

"For the FQ1 quarter, we expect GOOGL to report Google Gross revenue of $15.6B (+20% Y/Y vs. consensus of $15.5B) and NG EPS of $6.23 (vs. consensus of $6.30). We are modeling Paid Click/CPC Y/Y growth of 31%/-8% (vs. consensus of 29%/-8%), resulting in Google Website revenue of $10.6B (higher than consensus of $10.47B). We expect Google Network revenue to be $3.4B, up 4% Y/Y, but there is upside here as the company laps easy compares (remember that Google Network revenue was negatively impacted a year ago by policy changes made in late 2012)."

Topeka Capital Markets analyst Victor Anthony (Buy, $657 PT)

"We have been testing the explorer version of Google Glass over the past several weeks along our commutes, at our kids sporting activities, and other social events, and we let everyday consumers (non-techies) try out the device. Outside of battery life, we were pleased with the functionality of Glass and found the hands-free aspect compelling. The good news for Google is that consumer awareness of Glass is extremely high. The bad news is that while everyone appeared delighted by the functionality of Glass, few viewed Glass as a must-have device. Deals with eyeglass makers will go a long way to help change that perception with a more consumer friendly version, likely later this year. However, while the enterprise use case is growing, we are unconvinced that consumer demand will be sufficient to drive the product to scale and mainstream status like the iPad."

--Written by Chris Ciaccia in New York

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