Google Q3 2013 Earnings Preview

Google Q3 2013 earnings preview

The excitement of the earnings season is back and what better way to start it with the earnings calls of Yahoo and Google separated by just a day? Google(NASDAQ: GOOG) is all set to announce its Q2 2013 results after market close today, the 17th of October. The earnings release follows closely on the heels of Yahoo’s results. So what exactly should we expect from the biggest online search company.

Google acquired Motorola mobility in 2012 and reported consolidated revenues for the first time in Q2 2012. The previous quarter was the fifth quarter following Motorola acquisition and consolidation of Motorola mobility finances into Google financials. It facilitated the first Y/Y comparisons including revenues from both the segments. The quarter threw out two clear facts.

The growth rate of Google significantly fell following the acquisition of Motorola mobility/hardware segment. While one quarter performance would be too short a period to make a decision, the fact of the matter remains that the overall growth rate of the firm has slowed down. The advertising revenues of the firm grew close to 20%, while the overall revenues including Motorola have grown by just over 15%. In fact the hardware segment/Motorola mobility revenues had seen a fall of 20.16% in the previous quarter. Another important fact to notice is that the growth rate of the core advertising business has significantly fallen over the last 10 quarters.

The Motorola acquisition has also had a negative impact on the bottom line of Google. The reduction in the Net Income margins of Google, following the acquisition, is evident in the table below. The quarter Q2 2012, in which Google reported consolidated results for the first time, saw the Net Income margin of the company fall to below 25% for the first time.

Google_rev_EPS_growth_rate

The quarter ending September 2013 saw the first high profile launch of Moto X from Motorola mobility following its acquisition by Google. While there have been numerous rumours about the phone’s unique features, what investors will be looking forward to will be the ability of the phone to sell in the market and its impact on the growth and profitability of the hardware segment of Google. Will it be the hardware segment turn around the next driver of revenues at the internet giant, as the tried and trusted core business growth rate slows down, a fact which is imminent considering the huge size the advertising revenues have achieved? The advertising revenues in Q2 2013 were over $13.1 billion compared to the hardware segment revenues of just under $1 billion.

The turnaround of the acquired division could become a major revenue driver in the coming quarters while the failure to turnaround the hardware division will prove a further drag on the already slowing revenues from the advertising business. This is a question of immense interest to every investor and that is why the performance of the hardware segment is one thing we shall be looking forward to in today’s earnings call. A point of interest to investors will be the analyst expectations from the company. The analyst consensus estimate according to business week is an earnings per share of $10.37, compared to the year ago earnings per share of $9.03. Google stock closed the Oct 16th trading session at a price of $898.03 registering a one day gain of 1.82%.

To see the current stock price of Google click here: (NASDAQ: GOOG)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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