By Michelle Jones
Bernstein analysts expect Google's earnings results to start showing results from its search platform transition and Yahoo to provide important updates on its Alibaba stake.
There is a plethora of technology stocks coming in the next couple of weeks. Two of the most prominent companies that will be reporting are Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) and Yahoo! Inc. (NASDAQ:YHOO). Google is scheduled to report on July 17, while Yahoo is expected to report two days earlier, on July 15.
Google expected to show results from search transition
In a report dated July 10, 2014, Bernstein analysts Carlos Kirjner and Peter Paskhaver said they expect Google's Network revenues to reaccelerate in the company's next earnings report. They note that it has been a year since Google made the changes in policy that led to a slowdown in this area. The Bernstein team thinks Google Sites will show sustained growth of 21.5% on a foreign exchange neutral basis. They see search advertising revenue growth as being the main driver. At worst, they think the growth rate of search ad revenue will gradually decline over time.
They remain ahead of consensus on their margin estimates for Google. They're expecting the search giant to break down its click and cost per click growth rates for both Google Sites and Network. They think some investors are expecting disclosures that O&O search and cost per click are beating the average cost per click.
The Bernstein team says it's possible but not likely that the Ad Exchange's rapid growth and loss of search clicks in the network have negatively impacted aggregate cost per click growth by a significant amount. They expect Sites to be better than reported previously, which could help investors better understand the evolution of Google's search business.
They're looking for $15.89 billion in revenue and non-GAAP earnings per share of $6.23 per the quarter. That compares to consensus estimates of $15.6 billion in revenue and $6.24 per share in earnings.
Alibaba to affect Yahoo's earnings
The Bernstein analysts note that once again, Yahoo's earnings will be impacted by any commentary around the company's stake in Alibaba. The Chinese e-commerce company's initial public offering is approaching quickly, and Yahoo will be selling part of its stake in the IPO. Investors will want to hear whether the company will return all or most of the proceeds to shareholders.
The analysts believe after Alibaba goes public, Yahoo's stake will have a discount applied to reflect "limited liquidity" and also the risk that comes along with the company's potential misuse of the proceeds from the sale of the stake. However, if the company returns all or most of those proceeds to shareholders, they think the discount will be minimized. Another related topic is whether Yahoo will be able to liquidate part of its Yahoo stake in a way that is tax efficient.
In addition, investors will want to hear what impact Alibaba's IPO will have on Yahoo's EBITDA guidance. The Bernstein team estimates that Alibaba paid Yahoo about $135 million in technology licensing royalties, which come with very high margins but will stop when the online retailer holds its IPO. As a result, this should be reflected in Yahoo's guidance.
Tumblr could change Yahoo's course
Another area of interest includes how well Yahoo is monetizing Tumblr. They think it is an underestimated asset and suggest that it's like a cousin to Twitter Inc (NYSE:TWTR). Two year ago, Twitter had an average revenue per user of about 50 cents. With Yahoo's brand behind Twitter, they say Tumblr's average revenue per user should be ramped up at least at the same speed as Twitters.
Assuming Tumblr's 2015 ARPU is the same as Twitter's in 2012 and that its user base hits 200 million, they say Tumblr could contribute $100 million to Yahoo's display ad business, which they're projecting to organically hit $2.04 billion in 2015. They say Tumblr could be what changes the course of Yahoo's display business.
For the most recently completed quarter, Bernstein analysts are projecting ex-TAC revenue of $1.09 billion and non-GAAP revenue of 37 cents per share. That's compared to consensus estimates of $1.084 billion in revenue and 38 cents per share in earnings.