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Google under pressure ahead of Q3 results

The US internet giant is scheduled to release its third quarter earnings after the closing bell tonight.

Google logo
Source: Bloomberg

Investors will be hoping for another solid quarter following Q2’s results, where revenue rose 21.7% year-on-year and adjusted EPS jumped 40.2%.

While the market forecast is for revenue growth to slow down, improved profit margins are expected to lift EPS.

In the table below are the consensus estimates based on a Bloomberg poll.

 

Q3 consensus forecast

Q3 2013

Non-GAAP EPS

$6.53

$4.37

GAAP EPS

$5.36

$4.45

Revenue $13.192 bn $14.893 bn
Net income $4.488 bn $2.955 bn

 

What will be in focus based on details of the results being released will be Cost-Per-Click, mobile and video ad revenues

Cost per click has been declining over the past two years and weighing down on earnings growth. However, we have recently seen this being offset by enhanced marketing campaigns to encompass devices of various screens.

This has been helping to drive ad volume growth across the company, while traction through this program should continue to help boost the bottom line. With YouTube and video content gaining popularity, display ad sales should also come in higher.

Another metric under focus will be the performance of the mobile search ads division, which is the second largest unit that makes up nearly a third of Google’s value.

While the dominance of its Android’s operating system has helped capture a huge market, we are seeing competition intensifying in the mobile ad space particularly from the likes of Facebook and Twitter. New technologies such as graph search and deep linking within other platforms keep users away from Google.

Death cross forming?

On a technical level, we are seeing some bearish indicators suggesting a further downside in the near term.

Google’s stock has been on a downtrend. Its 20 DMA recently cut under its 100 DMA, and it is poised to form a death cross with the 50 DMA threatening to follow suit. This will suggest a further bearish momentum and a sell signal.

On a long-term basis, the market is hugely bullish on its prospects. According to a Bloomberg poll of analysts, there are 12 buy, 3 hold, 0 sell calls on Google.

Even if results do show an improvement from the previous quarter, Google investors have typically been hard to impress, so any profit-taking could spur more bearish momentum in the near term. In this scenario, it will likely look for a new support level and test its 50% retracement level at $517.

On the flipside, if we get results that are better than expected, this could swing the momentum around to see it edge toward the 23.6% retracement level at around $567.

Google chart
Click to enlarge

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