Why Google Earnings Might Surprise on the Upside

After two straight earnings reports that defied the gravity of Wall Street's expectations, sending the stock up like a hot air balloon, last quarter Google under performed despite their core revenue driver, search advertising, seeing an increased number of clicks.

The increase was offset by a lower average cost per click, which lead some analysts to believe more search was being done via mobile phones for which Google cannot charge as much, as clicks lead to fewer sales.
Some analysts believe that if the trend towards mobile search versus desktop continues, Google's long term profitability will be eroded.
I disagree with this assessment, as more and more targeted ads will be delivered in the future, based not only on the GPS tracked location of the phone and Google Plus user data, but assuming that security can win the war against the hackers, which is still up in the air, (but generally the direction the human race moves in) buying something on your mobile phone in the future will likely be as easy as buying on your desktop today.
Additionally, the numbers for the last few months showed Google edging upwards in overall search market share with an economy said to be in "recovery."
Hey, as long as the Fed is doping up the patient with cheap money, look for Google which is at minimum a barometer of inflationary pressures, to see increased raw numbers themselves.

Social (Google+ / Facebook)
It won't show up in immediate finances, but Google Plus is picking up a little steam. Where before it was a barren wasteland, I do see a little bit of activity.
It's like colonizing a large moon, with Facebook being the current Earth which no one wants to leave. Sure, the moon is close enough, and actually has a prettier landscape than Planet Facebook, but commuting back and forth is a pain, and you want to be where your friends are ...
all that said, G+ is showing signs of life. Look for analyst pleasing numbers here.

While clearly, the IPhone 4S was a hit, and the Windows 8 Phone isn't out yet, and though it poses a potential future competitive threat, along with the patent troll blackmailing hardware makers to produce their phones, nevertheless, the current quarter will show Android obliterating the competition in terms of raw usage numbers.
Google recently stated that 850,000 new Android devices are being activated daily, while the current number of active Android smartphones and tablets has topped 300 million. Also, the Android Market has just crossed the 13 billion apps downloads milestone.
Additionally, coming in September, Google is due to release their answer to Siri, called Assistant (formerly Majel) which according to preliminary research I've done (consisting of rumors and forum chatter) will kick Siri's butt.
Of course, there is no doubt Apple continues to work to improve Siri, so Google is shooting at a moving target here, but they will answer, and answer strongly.

I was lucky enough to be able to get YouTube to come and film this video for me! Check it out.

Here is where being immersed in a company and doing business with them pays off. I know for an absolute fact that YouTube revenues are going to be boffo for Google, and well beyond what they were last quarter. Why?
Well, I produce my short videos, like the one above, and last year Google started to display hyper-linked ads in the lower portion of the video that were derived from the labels and title of the video. I saw a saw a certain percentage increase in my earnings.
Reader: "What percent?"
Me: "Zero ... What, zero's a percent."

However, Google this quarter introduced "TrueView in-stream ads" where a commercial plays before the video every time you watch X amount of content. While I really don't earn much, it has shown a sizable percentage increase in earnings for me (Yes, greater than zero) as well as for many of my amigos on the Google/Youtube message boards, who are very excited about their new prospects.
I talk about it in the above video as an example of where you have an advantage over Wall Street as a whole, give it a quick gander.

Google Offers
When Groupon spurned Google's buyout offer, Google chose to create their own coupon/deals company. Frankly, as a shareholder, I am happy the way this turned out, as they were willing to shell out six bills (billion today, remember when "a bill" was slang for $100?! Talk about inflation) ... for a company with very low barriers to entry, with traffic, which Google dominates, probably being the biggest barrier.
Incidentally, Before writing this column, I bought a dry cleaning deal for $25 via Google Offers. Sure, this is a small project and a drop in the bucket for Big G, but it all adds up. Plus, I am absolutely certain they have spent way less than 6 bills so far with Offers.

Google the Portal
Google has started to make slow deliberate moves in becoming more of a portal versus straight search, not wanting to shock users with an overly massive change to their famously simplistic and economical homepage, kind of like slowly turning up the water when boiling a frog.
While the recent introduction of Google Play (music, apps, videos on demand, video games etc.) will have little if any affect on this quarter, it is just another example of the changes CEO Larry Page is making at the company, and how Google is trying to stay nimble.

Employee Compensation
Perks working for Google are famous, and part of the reason they have such a talented staff. Don't look for compensation to go down. there is enough to write about this for an entire other column.

The Downside
Google has never been afraid to spend money to bolster its position in the market place. Those in charge aren't bean counters, and frankly, while I applaud their long term thinking and willingness to take risks, there is bound to be some Wall Street analyst crying, trying to make waves over it.
Also, and there is no doubt all analysts have accounted for this, but Google sold its Clearwire stake at $433.5 million loss this quarter, and that will impact earnings, but is certainly already priced into the stock.
With a secretive company like Google, expenses are anyone's guess, but on the revenue side, my prediction is a pretty stellar quarter.
And if YouTube numbers don't come way ahead of prior quarters you can have a certain percentage of my net-worth. Zero is a percent.

I believe Google is undervalued, and fair price to be $700.


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