Trading Analysis: Google Earnings Preview
01:00, 29 januari 2015
· Av CMC Markets
By Colin Cieszynski, CFA, CMT, Chief Market Strategist and Jasper Lawler, Market Analyst, CMC Markets
Google shares have been under pressure heading into Thursday’s earnings report after a series of analyst downgrades. Google has not been able to make the same transition to ad revenue earnings from mobile that Facebook has and remains very reliant on desktop search ad sales.
Evidence that revenue is coming from more diverse sources including YouTube, Google Play and mobile search will be well received. With $62bn in cash at last count there is an outside chance Google could begin paying a dividend which could prove very popular with income-hungry investors in the current low yield environment.
The street is expecting Google to report adjusted EPS of $7.18 up 19% over year on sales of $14.7B, up 9% over year.
Last quarter, however, the company came in short of expectations, earning an adjusted $6.35 below street $6.52, while sales of $13.1B were essentially in line. With earnings growth expected to outpace sales growth, there is the potential for another earnings miss.
Google is currently trading around 18.5x forward earnings forecasts, slightly above its long-term growth rate of 17%, so the shares appear reasonably valued relative to earnings and growth but could be vulnerable if the company misses on earnings or guidance again.
Since completing a double top back in September above $600, GOOG shares have been trending lower bottoming out earlier this month just below $500. Recent trading has been sending mixed signals. Although a trend of lower highs remains intact, a rising RSI and the recent breakout from a falling wedge suggests a recovery may be starting. At a minimum, a sideways channel between two Fibonacci levels around $495 and $540 appears to be emerging with next potential upside resistance near $570.