Google (NASDAQ:GOOG) is set to report FQ1 2014 earnings after the market closes on Wednesday, April 16th. Google, one of the biggest search, data, and technology companies on the web just recently split its stock into Class A (NASDAQ:GOOGL) and Class C shares after the stock price exceeded $1000. Google has become a sort of tech ETF. Over the past decade, Google has expanded out from their search business into a variety of other verticals including email, cloud data storage, maps, web analytics, wearable technology, driverless cars, and a zillion other secret projects they are working on in unmarked warehouses out in Silicon Valley. In their most recent expansion, Google announced it will acquire solar-powered drone manufacturer, Titan Aerospace. Facebook (NASDAQ:FB) also had its eye on buying Titan Aerospace, which will produce drones that can fly at high altitude for 5 years at a time without landing, while spreading broadband internet connectivity to developing countries. With highly varying research and development expenditure each quarter, Google's EPS can be difficult to predict, but here's what investors expect on Wednesday.
The current Wall Street consensus expectation is for Google to report $6.19 EPS and $12.875B revenue, while the current Estimize.com consensus from 89 Buy Side and Independent contributing analysts is $6.25 EPS and $13.097B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Google to beat the Wall Street consensus on both the top and bottom line.
Over the past 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Google's EPS and revenue 4 times and once respectively. 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 more accurate than Wall Street up to 69.5% of the time, but more importantly, it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and 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.
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 moderate differential in EPS consensuses but a larger difference than usual in revenue expectations. (click to enlarge)
The distribution of estimates published by analysts on the Estimize.com platform range from $5.60 to $7.00 EPS and from $12.018B to $14.000B in revenues. This quarter we have a moderate distribution of EPS estimates for Google and a wider range of estimates on revenue.
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 wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings. (click to enlarge)
Over the past 4 months, the Wall Street EPS consensus rose from $6.14 to $6.19, while the Estimize consensus fell from $6.43 to $6.25. Meanwhile, the Wall Street revenue consensus dropped from a high of $13.146B to $12.875B, while the Estimize forecast declined from its own high of $13.393B to $13.097B. Timeliness is correlated with accuracy and downward analyst revisions at the end of the quarter are often a bearish indicator. (click to enlarge)
The analyst with the highest estimate confidence rating this quarter is TechStockRadar, who projects $6.24 EPS and $13.050B in revenue. TechStockRadar is ranked 16th overall among over 4,000 contributing analysts. Over the past 2 years, TechStockRadar has been more accurate than Wall Street in forecasting EPS and revenue an impressive 66% and 64% of the time respectively over 392 estimates. 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, TechStockRadar is expecting Google to beat Wall Street's expectations but fail to live up to the Estimize community consensus.
While Google's EPS can be difficult to predict, this quarter contributing analysts on the Estimize.com platform have higher expectations than Wall Street on both EPS and revenue. Over the next year, look for Google to continue spending money to expand on a variety of innovative programs including Google Glass, its driverless cars, Google Fiber high speed internet, and now high flying solar-powered drones that will connect the developing world to the global broadband network. Since Google spends so much of its money on innovation, it's important to focus on the company's top line. This quarter the Estimize community expects Google to report 19% year-over-year revenue growth.