When Google holds its earnings call tomorrow, analysts are anticipating a first: One of their own on the other side.
Wall Street Is Downright Giddy for the Debut of Ruth Porat, Google's New CFO
YouTube, mobile and cost cutting to take center stage in Google earnings report.
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Ruth Porat, the CFO of Morgan Stanley who Google hired as its own in March (for a handsome price), will oversee the first corporate reporting since starting on the job in May. She has spent her career in Manhattan as a formidable power broker in finance circles, a background that gives Internet analysts fleeting hope that she will reverse some of Google’s historically recalcitrant approach to Wall Street.
While Porat was long entrenched in banking, particularly housing finance, she is not a newcomer to tech. Like many at the top of Google, she went to Stanford. Her brother, Marc, was chairman and CEO of General Magic, the too-early-for-its-time mobile device startup in Silicon Valley. She’s close to Mary Meeker, from Kleiner Perkins Caufield & Byers. A New Yorker piece from 1999 paints a scene of the two women, with Kleiner partner Juliet de Baubigny, at a dinner poring through documents to find potential IPOs during the dot-com boom.
And she is familiar with the Obama administration — the president reportedly considered her for the treasury secretary job.
Here are the goalposts she is expected to aim for tomorrow: Earnings per share of $6.70 and net revenue of $14.27 billion. That would represent a continued slowdown in growth — an annual revenue uptick of 12.7 percent, next to a 25 percent increase for the last year. During the first quarter of 2015, Google missed expectations, with revenue of $13.91 billion, but saw its stock rise regardless.
And here’s what you should look out for on the call:
- More on YouTube: Last quarter, outgoing CFO Patrick Pichette spent considerable time on YouTube, namely on how it is adored by advertisers. It was a roundabout way to explain the weakening of Google’s cost-per-click metric (down 13 percent yearly). This quarter, Google introduced tailored commerce ads there. Analysts remain bullish on YouTube, although most are growing concerned about the rising video threat from Facebook. YouTube also risks losing more marquee talent, like Michelle Phan.
- Mobile money: Expect Porat and her counterpart, Chief Business Officer Omid Kordestani, to talk up their progress on mobile. Google has, per external numbers, gained traction in recent months on the goal of netting more from mobile ads. There’s also the coming mobile buy button and new features to commercialize search, although that may be covered under a “We’re excited to see what comes next” statement on the call. Google Play could get more play; some inside Google view the app store, which is just starting to run ads, as a cash faucet ready to be turned. Macquarie Securities estimates that the Play store has 80 percent operating margins, with open fields to grow.
- Buybacks, cutbacks: This is the big one for Wall Street. As they have for several quarters, analysts are nudging Google for more cash allocations (shareholder returns) and/or tighter belts (particularly around the mounting capital expenditures). Porat is their great hope.
Earlier this week, the Wall Street Journal reported that she is leading an internal audit of Google to trim the fat, looking at its costs, accounting and sizable headcount (55,419 as of last quarter). Google didn’t comment, but sources close to the company said that Pichette had earlier kickstarted an internal slimming process.
Still, for much of Wall Street, Porat is better positioned to execute. “[Pichette] viewed the Street as a necessary distraction,” said Mark Mahaney of RBC Capital. “That creates an opportunity for a new CFO to change the perception of the company a bit.”
That perception isn’t so critical to Google’s stock, though. By Mahaney’s admission, it’s still a buy. “Google has established unusually deep competitive moats around its business,” he wrote in his report. Porat may not have to show much over the moat to impress on the call.
This article originally appeared on Recode.net.
