Investors counting on big 3rd quarter from Google

AP News
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Posted: Oct 16, 2012 11:32 AM
Investors counting on big 3rd quarter from Google

SAN FRANCISCO (AP) — The pressure is on Google to deliver stellar third-quarter earnings to justify a sharp rise in its stock price during the past three months.

WHAT TO WATCH FOR: Investors probably will be focusing on how much Google's advertising revenue grew. Wall Street has been operating under the assumption that the Internet search leader has been continuing to devour a bigger slice of the marketing pie as more merchants and other businesses promotes their products online.

The optimism is the main reason Google's stock price has climbed by about 25 percent since the company's last earnings report in July. The shares closed Monday at $740.98, not far from the all-time high of $774.38 reached earlier this month.

The overall results, due out after the stock market closes Thursday, may be more difficult to decipher because this marks the first full quarter that Google Inc. has owned Motorola Mobility since completing its $12.4 billion acquisition of the device maker in May.

Motorola Mobility is expected to boost Google's total revenue by more than $3 billion and drag down the company's earnings. That's because Motorola Mobility has been sustaining substantial losses. Google is attacking that problem by laying off about 20 percent of the Motorola Mobility's workforce — a total of 4,000 employees — and closing about one-third of the device maker's 90 offices and plants. Those cutbacks will trigger about $340 million in accounting charges in the third quarter.

Besides poring through the numbers, investors will be tuning into Google's webcast of management's discussion of the result to hear if CEO Larry Page is well enough to speak for an extended period.

Page, 39, missed the second-quarter earnings conference call because of a mysterious throat problem that the company said made it difficult for him to talk. The company, which is based in Mountain View, Calif., has repeatedly said Page's ailment isn't serious. But if Page doesn't participate in Thursday's call, it may alarm Wall Street.

Google's advertising revenue has increased by at least 21 percent from the previous year in each of the past 10 quarters, so it will be viewed as a disappointment if the company doesn't at least maintain that pace.

Investors had been fretting about a decline in the average price for ads that appear alongside Google's search results, but those concerns have dissipated as it became apparent that the company is more than making up for the decrease with a higher volume of clicks on the commercial links and an influx of revenue from video-driven marketing. YouTube, the popular video site owned by Google, is expected is generate about $2.6 billion in revenue this year, estimates J.P. Morgan analyst Doug Anmuth.

Google also is being helped by the popularity of its Android software, which now powers nearly 500 million smartphones and tablet computers. Although Google gives away Android to device makers, the software brings in more advertising revenue because it is set up to drive more usage of Google's search engine and other services. About 1.3 million Android devices are being activated per day, according to Google

The third quarter, a period spanning July through September, also marked the debut of a Google-designed tablet computer called the Nexus 7 to compete against Amazon.com Inc.'s Kindle Fire and the larger, more popular iPad made by Apple Inc. Anmuth believes Google sold about 700,000 Nexus 7 units during the third quarter.

Government regulators pose one of the biggest threats to Google's continued success. Broad inquiries into whether Google has been abusing its dominance in Internet search to stifle competition and drive up advertising prices are believed to be nearly complete in both Europe and the U.S. If Google can't placate regulators' concerns, the company could be locked into legal battles with antitrust enforced in Europe and U.S. before the end of the year.

Google executives have typically declined to discuss the status of the government investigations during the company's earnings conference calls.

WHY IT MATTERS: Google is a good way to monitor the health of electronic commerce because it runs the Internet's largest advertising network. It's also one of the world's most powerful companies, so what happens to it can affect millions of people and businesses around the world.

WHAT'S EXPECTED: Analysts, on average, are expecting earnings of $10.63 per share on revenue of $11.5 billion, according to a poll by FactSet. The earnings projection excludes the costs of employee stock compensation and the revenue figure excludes Google's advertising commissions.

LAST YEAR'S QUARTER: Google earned $2.7 billion, or $8.33 per share, at the same time in 2011.Earnings per share were $9.72 after taking out the employee stock compensation expenses. Revenue totaled $9.7 billion, and after subtracting ad commissions, the figure stood at $7.5 billion. Google didn't own Motorola Mobility last year.