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Google Earnings: What to Watch for on the Upside and Downside


Important factors in today's report will include advertising revenue and the role of mobile technologies.

Google (NASDAQ:GOOG) will announce its first-quarter earnings after the closing bell this afternoon. Revenue is expected to increase to $11 billion, which would be a year-over-year increase of 35%. The Web giant has consistently beaten expectations in recent quarters, but questions remain as to what sector of the business will serve as the primary impetus for growth. Google's goal for its core business will be looking to continue to supplant Yahoo (NASDAQ:YHOO) in the paid-click advertisement market while simultaneously fending off Facebook (NASDAQ:FB), which has emerged as Google's primary competitor.

Yahoo's disappointing recent earnings report showed a severe drop in advertising revenue, and Google's report today will need to demonstrate the ability and willingness to pick up the resultant slack in this market sector. Google's last earnings report indicated a contraction in cost-per-click, or CPCs, though it now appears likely that the company will be able to make up some ground in this market. The market had a hugely negative reaction to the revelation of Yahoo's poor advertising revenues, which should be taken as a sign that any suggestion of weakness in the same field for Google will produce similar results.

Another important factor in today's report will be the role of mobile technologies, both in terms of Motorola earnings and Google's core business's expansion into the increasingly vital field of mobile-compatible software. Motorola earnings are likely to make up a large portion of Google's total revenue, but determining exactly how much at this point is difficult. Google's continuing expansion into mobile software, apps, and compatibility has, by most metrics, been successful and today's numbers will likely reflect these estimates. The mobile device market is growing at an exponential rate relative to the laptop and desktop markets, as are the markets for mobile software. Google has, to this point, been able to keep up and, at times, set the pace for mobile compatibility. But the company will need to keep up the pace in order to maintain or improve upon its current valuation.

Google has recently seen a large influx of buyers rotating out of Apple (NASDAQ:AAPL). This fact has led many analysts to worry that the stock has become -- and is becoming more -- over-owned like Apple was in years prior. Whether this belief is well-founded or not will not necessarily be signaled clearly by the earnings report, but this concern should be noted by longer-term investors.

I want to take advantage of the fact that we have seen lower-than-expected movements in Intel (NASDAQ:INTC), eBay (NASDAQ:EBAY), and SanDisk (NASDAQ:SNDK); I do not think that GOOG will hit the measured move target.

My trade is selling movement:

My Trade: Selling the GOOG April 735-730 bull put spread and 805-810 bear call spread for $2.10 credit total
Risk: $290 per 1 lot
Reward: $210 per 1 lot
Breakeven: $732.90 and $807.10

Greeks of this Trade:
Delta: Flat
Gamma: Short
Theta: Long
Vega: Short

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