Ahead of the Bell: Google's 1Q hinges on ad market

AP News
Posted: Apr 18, 2013 10:40 AM

MOUNTAIN VIEW, Calif. (AP) — Analysts and investors will be looking for what Google has to say about online ads, including those on mobile devices, as the Internet search leader reports its earnings for the first three months of 2013.

The first-quarter results are due Thursday after the stock market closes. Internet advertising typically tails off following the holiday season marketing frenzy. Yet the lull usually doesn't prevent Google from growing at an impressive clip for a company of its size.

Analysts expect Google's ad sales to rise by nearly 20 percent from the same time last year. Google's ability to keep growing has given the company a market value of nearly $260 billion, second only to Apple Inc. among technology companies.

Google is a good way to monitor the health of digital commerce because it runs the Internet's largest advertising network and is now a major player in the mobile computing market. It's also one of the world's most powerful companies, so what happens to it can affect millions of people and businesses.

Assuming Google's ad growth is in the range of analysts' forecasts, investor reaction to the report will likely be swayed by several other factors. One of the biggest keys will be the average price Google gets for ads running alongside search results. That rate, known as advertisers' "cost per click," has fallen from the previous year in five consecutive quarters. The erosion has been driven by an audience that is increasingly using smartphones and tablet computers — devices that don't yet command as high a price as ads on the larger screens of laptop and desktop computers.

But the decreases in ad pricing have slowed. Google executives have contended that advertisers eventually will pay more to sell things on mobile devices as people use them more. To help speed the transition, Google already has announced that it will change the way it sells ads to prod more marketers into buying spots on mobile devices at the same time they plan campaigns aimed at PCs. That switch is scheduled to take effect this summer.

The progress of Google's $12.4 billion acquisition of cellphone maker Motorola Mobility Holdings will be another area of interest. Motorola Mobility has proven to be a financial headache for Google so far. The division, which Google runs separately from the rest of the company, has sustained losses totaling $1.1 billion since Google completed the acquisition last summer. Another loss was expected in the first quarter, though analysts are hoping it will be less than the $353 million setback in the final three months of last year.

The conference call to review Google's first-quarter earnings will give analysts a chance to get more information from CEO Larry Page about the company's mobile ambitions. One of the hot topics may be Google Glass, an Internet-connected device that works like a smartphone and is worn like a pair of glasses. A tiny display screen is within the field of vision.

Computer programmers and 8,000 winners of a Google contest will be getting a test version of Glass this year. Google started distributing them this week.

"We expect the Web to light up with unboxing videos, first reviews, and initial impressions," analysts with Macquarie Capital wrote. "Pro or con, we believe that this is just the beginning of a new class of wearable computing that will help drive more and more pervasive Internet availability. Regardless if it is glasses, watches, wearable monitors, fabrics, etc., we do believe that Google and others will benefit from the Internet being more accessible."

The device currently costs $1,500, but Google hopes to lower the price by the time it is released on the mass market next year.