Google (NASDAQ:GOOG) is expected to announce its Q1 2011 earnings on April 14th. We believe that some of the most important developments are indications of mobile advertising growth and the capital expenditure outlook for Google. We believe that these factors play an important role in Google’s earnings and create the upside or downside impact to our $603 price estimate for Google stock. Our price estimate is just about 4% above market price. These factors could also define its competitive position in the search advertising market in which it competes with Microsoft (NASDAQ:MSFT), Yahoo (NASDAQ:YHOO), and AOL (NYSE:AOL).
Mobile Advertising Market Growth
The mobile advertising market is becoming an important growth segment of the overall search and display advertising market. Google has openly announced in the past that it expects to pass $1 billion in revenues from mobile in 2010, accounting for roughly 4% of Google 2010 revenues. [1] Although it has not provided any update beyond that, it will be interesting to see what kind of number Google comes up for Q1 2011 quarter. We have previously discussed the importance of mobile advertising to Google, and how it could help Google gain further share in the search advertising market (see Google’s Stock Worth $680 on Mobile Search Growth). While this is currently a very small portion of Google’s overall revenues, we see it as a huge growth opportunity and potential future driver of growth for the search engine titan.
See our full analysis and $603 price estimate for Google
Capital Expenditures Growth
We will also watch for Google’s capital spending growth trend in Q1 2011 and outlook. Interestingly, its capital spending has been volatile over the past few years, and it declined rapidly from $2.4 billion in 2008 to $0.8 billion in 2009 before shooting back up to $4 billion in 2010. This lumpiness can create some uncertainty with respect to its earnings outlook and so we look for additional guidance here.
Although we forecast a stable capital spending relative to the company’s EBITDA margins, it could present downside to our estimate for Google stock if the company maintains an elevated level of capital spending. As such, we believe that any negative surprises here could have a negative impact on the shares and create more questions regarding the future outlook. You can find additional details regarding its earnings call on its website. [2]
See our full analysis for Google.
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