Google plans to announce its Q2 earnings Thursday afternoon and Wall Street will be paying extra close attention for one big reason: It’s the first quarter under the leadership of new CFO Ruth Porat.
Porat didn’t officially take the reigns from former CFO Patrick Pichette until May 26, but there’s still huge pressure on her to deliver a beat.
Before joining Google, Porat spent more than 20 years at Morgan Stanley, prompting Politico to laud her as “the most powerful woman on Wall Street.”
When Google announced her hire, investors and analysts hoped that having a former Wall Streeter within the tech giant would lead to some positive changes, like an emphasis on disciplined spending and less stock-based compensation for employees.
“The obvious BIG wildcard for Q2 is the CFO’s message to shareholders, and we think she will deliver,” analysts from Deutsche wrote in a note Wednesday morning.
Google’s revenue grew 19% in 2014, way down from its growth rate of 29% in 2011. Increased expenses caused operating-profit margin to decline to 32% last year from 38% in 2011.
With those slimming profit margins, investors want proof that the company isn’t pouring too much money into its so-called “moonshot” projects, instead of focusing on its core advertising business. The growth in Google’s paid clicks — how often people click its ads — and the price it can charge for all of those clicks have both been decelerating.
“Margins have suffered over the recent years so it’s important to know that they can stanch the bleeding so to speak,” Motley Fool analyst and Google investor Jason Moser told Business Insider via email. “We look forward to getting to know more about Ms. Porat and her hopes and goals in the coming quarters.”
Although analysts at Piper Jaffray believe Porat has incentives to either meet or exceed Wall Street expectations, they aren’t putting too much hope on decreased expenses.
“We believe investors expected Porat to refocus on expenses following her hire,” analysts write. “However, thematically, it is harder to see how aggressively Google can really cut expenses when its biggest threat, Facebook, is planning on growing expenses in 2015 by 55-65% vs revenue growth of something in the high 30% range.”
The competition between the two companies has been increasingly heating up.
US smartphone users spend more time in Facebook’s apps than Google’s, the social network is on track to win more new ad dollars than the search giant, and Facebook is ramping up its video product to better compete for those digital ad dollars, launching a “full-on attack” against YouTube according to Re/code’s Kurt Wagner.