Google faced rougher landscape in second quarter
SAN FRANCISCO (Reuters) - Wall Street expects Google Inc (GOOG.O) to report tepid revenue growth for the second quarter on Thursday amid a tough advertising market and a sharpened attack on its business by rival Microsoft Inc (MSFT.O).
Analysts will be looking for updates on both fronts as they gauge the Internet giant's progress toward recapturing the double-digit sales growth it once enjoyed.
While analysts believe Google's search-based advertising model remains the best in the business, some say it has never been tested to this degree.
"Google can't stimulate demand," said Oppenheimer analyst Jason Helfstein. "All they can do is try to monetize the demand that's out there."
Helfstein expressed concern that Google could miss certain Wall Street targets, such as U.S.-based revenue, but he also said the second quarter could represent the company's low point in this economic downturn.
Analysts on average expect Google to report revenue of $5.49 billion for the quarter, up about 2.3 percent from nearly $5.37 billion a year earlier, according to Reuters Estimates.
The analysts' average forecast calls for earnings per share of $5.08, excluding certain items, compared with $4.63 a year earlier.
Shares of Google are up roughly 9 percent in the past three months, outperforming gains of 2.8 percent for the Dow Jones Industrial Average .DJI and 7.8 percent for the Nasdaq Composite .IXIC.
Goldman Sachs derivative strategists estimate Google's options imply a 7 percent stock move, up or down, on earnings day, compared with a median realized move of 6 percent over the past eight quarters.
"Overall, the option sentiment appears moderately bullish into Google earnings judging by the amount of option contracts outstanding and the order flow," said Henry Schwartz, president of option analytics firm Trade Alert.
PAID CLICKS
Investors will scrutinize any increase or decrease in Google's paid clicks, following the 17 percent year-over-year rise in the first quarter.
The final month of Google's second quarter will include extra competition from Microsoft, which launched a revamped search engine called Bing and backed it with a $100 million marketing campaign in June.
Bing has boosted Microsoft's share of the U.S. search market to 8.4 percent in June from 8.0 percent in May, according to comScore. Google maintained a 65 percent share, while Yahoo Inc's (YHOO.O) fell half a percentage point to 19.6 percent.
Bing's long-term impact on Google's business is unclear. Cowen and Co analyst Jim Friedland noted that search query share is not the same as search advertising share, as advertisers may not yet have shifted ad dollars to Bing in its first month of existence. Continued...
