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By Brendan Gilmartin

Overview

Google (NASDAQ:GOOG) is scheduled to report 4Q 2013 earnings after the close of trading on Thursday, January 30. Results are usually available in the minutes after the closing bell with a conference call slated to get underway at 4:30 p.m. EST. The S&P E-Mini, NASDAQ 100 E-Mini futures contracts and PowerShares QQQ (NASDAQ:QQQ) tend to see active trading off the results.

Outliers And Strategy

Key Measures:

  • Google traditionally reports a value for Non-GAAP Earnings Per Share that is comparable to consensus.
  • Selerity produces a derived value for Revenues Ex-Traffic Acquisition Costs. The resulting value compares to consensus forecasts for revenues. The value is determined by taking the Revenue figure and subtracting Traffic Acquisition Costs.
  • Google is expected to earn $12.21 per share (on a Non-GAAP basis) on revenue of $16.76 bln, up 37.8% from the year-ago period. The high estimates on the Street are $13.67 per share and $18.14 bln, respectively (Source: Yahoo Finance). Given the run-up in Google shares, look for earnings at the high end of this range in order to sustain the advance.
  • Google shares recently rallied to an all-time high of $1,167.89, thanks to international growth, mobile expansion, and improving margins. Last quarter's stunning release drove the shares up nearly 14%, with non-GAAP EPS topping estimates by more than 4% and revenues also handily exceeding the consensus. Recall the company said Paid Clicks rose a stronger than expected 26% year over year and 8% sequentially - signals that Google's ad business remains a key driver, while reminding investors in the ensuing conference call that it remains strongly-positioned in mobile. Coming into Thursday's release, sentiment remains on the high side, while the options market is currently pricing in a 6% move in reaction to the results.

Recent News

  • 01/13: Google rose 2.35% after announcing an agreement to buy Nest Labs, Inc. for $3.2 billion in cash.
  • 01/13: Oppenheimer raised the target price on Google to $1,220 from $1,067, according to a post on Barron's Online, as the firm expects earnings and revenues for the 4Q period to top consensus estimates.
  • 01/07: JPMorgan reiterated an Overweight rating and increased the price target on Google from $1,100 to $1,305, according to Barron's Online, based on strength in mobile and video - both of which should drive ad revenue. Similarly, Deutsche Bank reiterated a Buy rating and a $1,220 price target, based on its above-average growth.

Technical Review

Google shares recently topped out at a fresh all-time high of 1,167.89 (1/22) before the broader market retreat pulled the shares back toward the 1,100-mark. Should earnings surprise to the upside, Google could make a run back toward the aforementioned high and beyond. Conversely, there is initial support just above the 50-Day SMA near $1,100, with further downside risk to $1,150 if Google issues a weaker than expected release. (Chart courtesy of StockCharts.com)

Summary

Google shares are rallying ahead of the 4Q earnings release, benefiting from its aggressive expansion in mobile, its dominant position in search, increasing ad revenues, growth in the YouTube segment and relative valuation. Given this positive backdrop, Google needs to deliver solid results for the 4Q period in order to recapture the 52-week high near $1,167 established last week. Conversely, Google has been known to issue results that have missed earnings estimates and triggered steep downside moves. The current market backdrop is suggesting just the opposite.

DISCLAIMER: By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Source: Earnings Preview: Google Q4 2013