Wall Street Waits for Google Q2 Earnings

Google is slated to report second quarter earnings after the bell tomorrow afternoon, with analysts expecting $3.87 billion in sales and earnings per share of $4.74.

This is substantially less than the $5.19 billion Google tallied in revenues from Q1, but the EPS easily eclipses that quarter's figure of $4.12. But hey, it's the middle of summer, which is traditionally slower.

Indeed, mid-summer earnings are rarely the kind of things that get us high-tech journalists leaping out of bed bright-eyed and bushy tailed, but it's Google so the earnings must give us pause to mull the market.

Since we rolled into 2008 the market has been plagued by fears of a recession. One of the ways, of course, that we can grasp this theory besides finding our neighbors foraging for food in our kitchens at 4 a.m. is to look at how the search and online ad bellwether is faring.

To wit, Citi Investment Research has produced a "cheat sheet," or a forward-linking piece on what it expects from Google. Citi's Mark Mahaney wrote July 15 it "will clearly provide a read for Internet advertising stocks, and qualitative comments on the Q2 outlook will be key."

Mahaney said that based on channel checks with four SEMs (search engine marketers), Google is in line for the quarter. Indeed, Mahaney is looking for $3.82 billion in sales and EPS of $4.72.

He noted the SEMs told him Q2 search spending is higher than in Q1 and that "Google continues to gain the lion share of ad budgets, especially given the uncertainty and flight of talent at Yahoo." Moreover, cost-per-click prices are higher and SEMs plan to increase search spending through the end of the year.

Things to watch this quarter from Google: internal paid click growth rate versus the broader market rate; international traction and any adverse impacts from the flagging European economy; and updates on the DoubleClick integration.

Mahaney and Co. believe Google's best chance to expand its sphere of online ad influence lie in the largely untapped display and video advertising markets, not to mention through mobile search ads.

Google Search and Apps have been spreading like wildfire on mobile devices, but Mahaney wants to hear more about Android on the call. Good luck.

I don't expect Google's Eric Schmidt, Larry Page or Sergey Brin to unleash much 411 on Android. They've been pretty quiet on that score and I think it's a stressful issue with them, particularly with the successful iPhone 3G dazzling everyone in the past week.

No, I expect to hear encouraging words on monetizing video ads on YouTube and display ads via DoubleClick, which just announced a new publisher exchange program for publisher and agency customers.

I also expect Page to discuss making money from social networks, a true bugbear for Google, Facebook and MySpace, et al., to date.

Meanwhile, despite raving about Google as the best Internet stock, Mahaney and Co. continue to rate Google as high risk for stock buyers thanks to the competitive landscape the company faces and the high valuation multiples of growth stocks in the Internet sector. Mahaney noted:

Wow! Is that all? I was afraid the concerns would be significant. Citi's cautious optimism says it all about the king today, fool for a lifetime specter hanging over nouveau Web companies.