Google Earnings Preview

Google GOOG will report earnings on Thursday after the bell with a conference call scheduled for 4:30pm EST. It’s all about online ad revenue just as it was with Yahoo. YHOO Of particular importance will be ad revenue generated from mobile sites as an increasing number of users ditch their computers and use tablets and smartphones.

Expectations

If you’re a Benzinga Pro subscriber you know that Google is expected to report EPS of $10.69—a 10 percent premium year over year. Analysts expect revenue of $14.22 billion—a nearly 75 percent increase year over year. Analysts expect ad sales to grow by 20 percent year over year.

The Bull Case

Google has seen a resurgence of late. Google Glass, a wearable computing product that has the attention of investors and tech junkies alike, represents a step forward in the hardware market and a commitment to not just produce software based products, but also innovative hardware.

The company is also planning to open retail stores later in 2013. If it works as well as it did with Apple AAPL, it would represent a powerful revenue stream. (Is Ron Johnson still looking for a job?)

Then there’s the 31 percent stock appreciation in the past 12 months. This is great news for a stock that has provided little return for long term investors over the past couple of years, along with no dividend.

The Bear Case

First, valuation. Do you want Google, with a forward P/E of nearly 15 when you could have Apple with a forward P/E of 8? Of course, both sides will have passionate arguments for this question but an increasing number of investors are seeing Google as overvalued at these levels. That might be why the stock is trending lower and some are calling Google the next Apple when it comes to stock corrections.

Then there’s display ad revenue. The mobile device market is growing at an unbelievable rate but the price of ads on mobile devices doesn’t command as high of a price as traditional ads. This is why Google’s cost per click metric has fallen year over year in the past five quarters. The good news is that the decline has slowed.

Also watch for color on the Motorola Mobility acquisition that has resulted in $1.1 billion in losses since its acquisition.

Technical Analysis

The stock has been in an uptrend since mid-November hitting a 52 week high of $844 at the beginning of March. Is has since shed about 7 percent of its value. It’s holding the lower trend line of the ascending channel but its 50 DMA has served as strong resistance over the past couple of weeks. While a break above the 50 day would be a positive sign, until the stock breaks through the $817 level on volume, the downtrend is still in place.

Regardless, the risk/reward for an earnings day trade is attractive at these levels. An impressive earnings announcement could send the stock significantly higher. But a hedged play is still advised since a negative report would give the shorts even more reason to pile in.

Disclosure: At the time of the writing, Tim Parker was long Apple.