Google Q1 Strong on YouTube Display Ads, Paid Clicks

Google is expected to announce earnings of $6.31 billion on earnings per share of $8.14 April 14, as the company moves forward under new CEO Larry Page's command.

Google is expected to announce earnings of $6.31 billion and earnings per share of $8.13 when it reports first quarter earnings April 14, 10 days after Larry Page began his second stint as CEO at the search engine.

Jefferies and Co. analyst Youssef Squali said he expects Google to meet or slightly beat expectations, thanks to strength in pricing, international business and display advertising.

Squali, who sees Google wielding 70 percent to 75 percent of overall search ad budgets in North America and 90 percent overseas, is calling for Google to report earnings of $6.32 billion on EPS of $8.11.

He also anticipates a 15 percent bump in paid clicks and 8 percent boost in cost-per-clicks, which is the basis for his expectations that Google's year-to-year revenues will grow 25 percent. Google's posted Q1 2010 earnings excluding items of $6.76 a share, and $5 billion in net revenue.

Global Equities Research analyst Trip Chowdry also noted that Google's search market share is stable, and that both its query volume and CPC volume are up, as electronic marketers are still allocating 88 percent to 90 percent of their budgets to Google and the remaining to Microsoft Bing.

Chowdry also noted YouTube had another quarter of strong showing, with homepage masthead and homepage expandable masthead ad formats sold out for the next 6 to 8 months.

Chowdry, who expects Google to report net revenues of $6.4 million and EPS of $8.19 this Thursday, tempered this bullishness with a caveat looking forward.

He argued that if the U.S. government passes its proposed Do Not Track regulation, Google could see a hit to its YouTube ad traffic as it uses re-marketing to redirect a user from search to YouTube. This is what drives YouTube video as revenues.

"If the government passes Do Not Track me regulation, it is possible that then Google may not be able to re-market YouTube to search query users, which then may impact YouTube monetization," Chowdry wrote.

Squali also curbed his enthusiasm, albeit for different reasons. He noted Page's new post as CEO and the persistent regulatory scrutiny Google is facing lend uncertainty to the mix for investors.

Page reorganized his senior management team April 7, promoting high-level executives to head business lines and report directly to him.

He also tethered employees' bonuses to the success or failure of Google's evolving social strategy, which is designed to catch some of the fire Facebook has enjoyed to date. The moves could "alienate many," Squali noted.

"While potentially positive, this reorg brings strategic and execution uncertainty, at a time of ever increasing competition from Facebook and others," Squali wrote in an April 8 research note.

Page and his team also must deal with regulators both in EU and US. The European Commission and Texas state Attorney General are looking at Google's search and ad practices. The DOJ just cleared Google's $700 million bid for travel software maker ITA, albeit with stringent conditions to temper antitrust concerns.

Short term, neither the leadership nor the regulatory scrutiny should impact Google, but they do pose serious ramifications for the company's growth and profitability over time, the analyst said.