4 Things to Watch When Google Inc. Reports Earnings

It's that time again, Google investors. The world's leading search engine reports first quarter 2015 results this Thursday. And after Google missed expectations on both the top and bottom lines three months ago, shareholders should start thinking about what's in store.

Here are four things I'll be watching when Google's release hits the wires:

On global currency headwindsFirst, 56% of Google's overall sales last quarter came from international markets, so it's no surprise foreign currency headwinds were the primary catalyst of its sub-par performance. Had foreign exchange rates remained constant on a sequential basis from Q3 to Q4, Google's reported fourth quarter revenue of $18.1 billion would have been $468 million higher, or $616 million higher excluding the positive effects of the company's foreign exchange hedging program.

Of course, this is encouraging because currency headwinds should not only prove temporary, but they are also not indicative of deeper issues with Google's businesses. But for the time being, it seems safe to assume Google won't be able to use its hedging program to fully offset the negative effects of foreign exchange. Keep an eye out, then, for any comments from management both on the severity and the expected duration of currency headwinds going forward.

On the state of Google's core ad businessSecond, I want to know how well Google's core advertising business is holding up. That will include overall revenue growth for Google's Sites and Network partner sites, which rose 18% year over year to $12.43 billion, and 6% year over year to $3.72 billion, respectively. Google will also provide information on growth or declines in aggregate paid clicks. Last quarter, aggregate paid clicks rose 14%, helped by 18% growth in clicks from Google-owned sites, and hindered by an 11% decrease from Network partners.

But perhaps most telling will be Google's average cost-per-click, which measures exactly how much the company makes per advertisement. Last quarter, cost-per-click decreased 3% year over year, hurt by an 8% decline at Google sites and helped by a 6% increase from Network partners. That might sound bad, but keep in mind it was second-best result for the metric since declines began in late 2011. Ideally, investors would like to see cost-per-click either return to growth or see declines continue to moderate.

Is "Other" revenue still dragging?Third, I'll be watching whether sales growth reaccelerates from Google's "Other" category. This includes non-search products like Google Play and mobile hardware. "Other" revenue last quarter climbed "just" 19% to $1.95 billion. Though that still outpaced Google's overall growth, it was a big sequential deceleration as "Other" revenue rose a whopping 50% year over year during the previous three-month period.

Management explained while sales of electronic media and games through Google Play continued to drive the segment's relative outperformance, "Other" revenue was held back by a combination of the aforementioned currency headwinds, as well as trouble securing sufficient inventory to meet demand for Google's new Nexus 6 smartphone. We already know Google can only do so much to address foreign currency variables, but at the very least I'd like to see those inventory challenges resolved.

If any combination of these two factors occurs -- and barring any other unforeseen challenges -- "Other" revenue should be able to resume its impressive climb and reduce Google's outsized reliance on search.

On continued investments for growthFinally, look for Google to continue aggressively reinvesting in its business to sustain growth. After generating an impressive $6.36 billion in cash from operations last quarter, Google had seemingly incredible capital expenditures of $3.55 billion. That was split between production equipment, datacenter construction, andfacilities --the last of which included just over $900 million in real estate investments during the quarter.

Google CFO Patrick Pichette. Source: Google

And don't be alarmed if they detail similar investments this quarter. As Google CFO Patrick Pichette stated during last quarter's follow-up conference call, they try to be "opportunistic about acquiring space in real estate where we need to relieve pressure and accommodate for future growth."

Meanwhile, operating expenses came in at around 37% of revenue last quarter, up from around 32% in the same year-ago period. Don't be surprised, though, if that number falls slightly on a sequential basis as a percentage of revenue; last quarter's results notably had over $300 million in "unusual" operating expenses, including some accounting charges related to compensation, writedowns on a small number of real estate assets, and a one-time payment to buy out select leases in markets requiring more space.

But while the exact amount of Google's chunky capex and operating expenses remains to be seen, one thing is sure: Google has voiced its intention to keep investing heavily to foster long-term growth. As long as those investments continue to bear fruit, patient investors should be more than happy.

The article 4 Things to Watch When Google Inc. Reports Earnings originally appeared on Fool.com.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Google (A shares) and Google (C shares). The Motley Fool owns shares of Google (A shares) and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.