Google on deck: Pressure is on Page

Investors want to hear the new CEO's plan to sharpen the search giant's innovative edge when the company reports earnings after Thursday's close.

By TheStreet Staff Apr 14, 2011 10:26AM

the streetBy James Rogers, TheStreet


As Google (GOOG) kicks off tech earnings season with the release of its first-quarter results after the bell Thursday, new CEO Larry Page -- presumably speaking on the company conference call at 4:30 p.m. ET -- will set the scene for a new era in the search giant's history.


Page is taking Google's reins at a critical juncture for the lumbering tech firm, which while securing its spot as the market leader in search has fallen behind other, more nimble Silicon Valley techs like Facebook.


Just a week into his new gig, Page streamlined Google's management and identified six core product channels, which include mobile, social networking and video. Investors will be looking for more about Page's strategy. They're also likely be looking to hear how Google plans to expand its core search capabilities, which account for about 90% of the company's overall revenue.


"After losing market share in core U.S. search in the first 8 months of 2010, Google reversed that trend in the fourth quarter of 2010," Sandeep Aggarwal, an analyst at Caris & Co., wrote in a research note explaining that Google almost reached record share in the first quarter. "At the same time, paid search trends are getting healthier overall -- we saw positive year-over-year growth of Cost-Per-Click (CPC) in top categories such as retail and finance for 11 months in a row."

CPC, the amount advertisers pay for each click on an ad, is a key metric for Google, particularly as newer companies like Facebook push to gain ad revenue.


Overall, analysts surveyed by Thomson Reuters expect Google to report first-quarter revenue of $6.32 billion and earnings of $8.10 a share, compared with $6.77 billion and earnings of $6.76 in the year-ago quarter.


One thing that has some Wall Street tech watchers concerned is Google's margins. To counter the recent brain drain to other Silicon Valley companies, Google announced an aggressive hiring cycle last quarter, as well as meaty increases in compensation, which could affect expenses and limit margins.


On that note, Oppenheimer recently lowered its estimates for Google through 2012. UBS also dropped its Google target, warning of near-term margin pressure. And as a result of the hiring and the growth of lower-margin businesses such as YouTube, mobile and display ads, Caris & Co.'s Aggarwal expects some first-quarter margin pressure.

Google is also likely to face questions on its mobile strategy. The company's recent decision to delay open-sourcing Honeycomb, the tablet version of its Android OS, prompted speculation that it was shifting its open-source stance. Although that notion was vociferously denied by Android chief Andy Rubin, mobile is undeniably one of tech's biggest growth areas and in terms of platforms and has fallen into two main camps: Android and Apple's (AAPL) iOS.


Analysts and investors will also be looking for elaboration on any plans Google has to enhance revenue via its mobile search and ad presence.


Google shares, which have dipped almost 3% this year, were down 0.58% to $572.95 in early trading Thursday.


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