oogle reports its Q1 earnings after the closing bell on Thursday, April 23rd.
A change in the Google search algorithm to favour mobile-optimised websites may mean “Mobilegeddon” for many websites this week, but marks a positive shift for Google.
Google is still a money-making machine but its rising revenues have come short of analyst expectations in three of the last four quarters. The slower revenue growth is in large part to Google’s slow adaption to mobile advertising that has allowed the likes of Facebook to gain market share.
The new search re-orientation to mobile in combination with the Android operating system might go some way to turnaround the deceleration in “paid clicks” growth and company revenues in the quarters ahead. For now, the risk remains for revenue growth to remain sluggish, particularly when factoring in the effect of a strong dollar on foreign earnings.
The recent regulatory challenge from Europe is a long term headache for Google. That said, Microsoft’s experience with Europe’s regulators is probably instructive; no particular damage to the business except years of legal fees.
Until a noticeable step forward in earnings performance The issues with mobile and now the European regulators could dampen sentiment towards the company.
Earnings and valuation
Google is expected to report EPS of $6.63 on revenues or $14.0B up 15% from last year. The shares are trading at 18.8x forward earnings expectations. At a price to earnings growth ratio of 1.25, and with the shares trading down 105 from their 52-week high, they do not appear to be excessively valued heading into the report and expectations appear reasonable.
Last time around, sales and adjusted net income came in slightly below expectations, so there is a small chance of a disappointment.
Focus chart: Google
For just over a year now, Google shares have been range bound, digesting a major advance that they staged in late 2013 and early 2014. A broad channel appears in place between $495 and $615.
Toward the end of last year, the shares completed a head and shoulders base which is circled. An initial breakout rally stalled out in a double top near $585 but following a correction, support has emerged at a higher low near $530.
Recently, the shares climbed back above, $540, a Fibonacci level and also the neckline of the head and shoulders base, an encouraging sign. Next potential upside resistance appears in the $550-$560 range where the 50 and 200-day moving averages converge followed by $565 near another Fibonacci level.
Source: CMC Markets
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