Google has their earnings after hours on Tuesday July 26th, along with Microsoft.
As we saw with Snapchat’s earnings, the advertising market is declining as companies look towards an economic decline in the coming quarters. One can argue that as a company starts to tighten its belt to cut costs and fight inflation, besides layoffs, advertising is usually the first to get the axe.
From personal experience, I run a few small websites and have had used google adsense for over a decade. Yes, this time of the year it is not uncommon to see a decline in advertising revenue, but this July has basically dried up to almost nothing.
We saw Google take a 3% hit AH/PM on Snapchat earnings, then another 3% drop during regular hours on Friday. A 6% drop for a single day for Google does not bode well for earnings expectations.
Why should you care about Google and advertising? This is a chart from 2021, but it essentially still holds true today. Basically ~81% of Google’s revenue is from ADVERTISING.
Yes, their revenue and profit have grown considerably in the past few years to warrant that increase in value (2020 - 2021 was like 40-50% YoY), however I still feel there is some big correction coming soon. First, people aren’t locked down from COVID anymore bored at home watching youtube all day. Second, as mentioned companies looking to trim budgets are going to slash advertising. Their Q4 earnings back beginning of February we saw a smash hit and they gapped up, however Q1 earnings end of April we saw a decline, albeit still a 20% revenue increase over 2021 Q1 numbers.
The market is looking for an EPS of $1.28 and revenue of 70.78B, or only about a 15% revenue increase over 2021 Q2…
[size=5]Final Analysis & Thoughts:[/size]
Google has been trading in a channel between 105 - 120 since basically almost last earnings. If you haven’t figured out yet, I’m bearish on their earnings. While I don’t think it will be so bad (yet) as to cause the stock to knife down, my wild ass guess is that we see the stock stick to the bottom of the channel, maybe push closer down to 100, depending on overall market conditions. I think 100 is going to be a big psychological number to break.
Long-term, Google isn’t going anywhere. Heck, even today you could buy Google and probably 3-5 years from now bank on really nice profits. But for this specific earnings, I think it’s going to start showing some cracks emerging in the current economic conditions that the market has yet to fully accept.