The Bar Is Set High For Google, Will The Company Meet It?

Jan.30.14 | About: Alphabet Inc. (GOOG)

Google Inc. (NASDAQ:GOOG) is set to report FQ4 2013 earnings after the market closes on Thursday, January 30th. According to a December report by Amazon (NASDAQ:AMZN) owned web traffic data company Alexa, Google is the most visited website on the internet. Google offers a variety of services and products in addition to its flagship search engine which include popular email service Gmail and video hosting website Youtube. Most of the company's profits are derived from online advertisements through Google Adwords.

Google is coming off a blowout quarter in October, when it announced much better than expected EPS and revenue. This quarter analysts are predicting lofty growth in both profit and sales. However, Google has a history of not always living up to the profit expectations from Wall Street. Google is an innovator and is not afraid to invest large amounts of cash on new technologies. Some recent examples include its driverless car and the wearable Google Glass technology. A high degree of spending on future projects could keep Google short of the profit expectations and the ridiculously high projected revenue figures may be too much for Google to keep up with. Here is what the buy side is expecting from Google this quarter.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.image

(Click Here to see All Estimates for Google)

The current Wall Street consensus expectation is for Google to report $12.39 EPS and $13.419B revenue while the current Estimize.com consensus from 77 Buy Side and Independent contributing analysts is $12.36 EPS and $13.403B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Google to miss the Street on both profit and revenue.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small differential between the 2 groups' forecasts.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus. image

The distribution of estimates published by analysts on the Estimize.com platform range from $11.89 to $13.92 EPS and $12.940B to $13.920B in revenues. This quarter we're seeing a smaller distribution of estimates compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A smaller distribution of estimates signaling more agreement in the market, which could mean less volatility post earnings.image

Throughout the quarter Wall Street raised its EPS consensus from $11.81 to $12.39 and the Estimize consensus increased from $12.24 to $12.36. On revenue, Wall Street raised its forecast from $13.110B to $13.419B while Estimize expectations increased from $13.260B to $13.403B. Timeliness is correlated with accuracy and rising analyst revisions at the end of the quarter are often a bullish indicator.image

The analyst with the highest estimate confidence rating this quarter is WallStreetBean who projects $12.40 EPS and $13.300B in revenue. In the Winter 2014 season, WallStreetBean rated as the 16th best analyst and is ranked 9th overall among over 3,650 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case WallStreetBean is expecting Google to meet the Street's expectations for profit but come up short on revenue.

This quarter analysts on the Estimize.com platform are expecting GOOG to miss Wall Street expectations on both the top and bottom line. Analysts are predicting that sales and profit will both be up but are doubting Google's ability to meet the high bar that Wall Street has set.

Disclosure: No positions