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Google: Alert and Cost-Conscious

NEW YORK ( TheStreet) -- Favorable winds in the ad spending market are expected to boost Google's (GOOG - Get Report) top line when the search giant reports earnings after the bell Thursday.

But the bottom line is the other half of the story, and that's the part that worries investors.

Google is expected to have booked net revenue of $5.25 billion in the September quarter, excluding the estimated $1.8 billion in so-called traffic acquisition costs (TAC) that the company pays its affiliates to funnel people onto its network. The whispers of wind filling Google's sails comes from its continued growth overseas and the market share it is winning from No. 2 rival Yahoo! (YHOO - Get Report).

But investors are leery of Google's wide-ranging expansion efforts and the impact of the rising costs on margins.

Analysts expect Google's third quarter adjusted profits to be $6.67 a share, according to Yahoo! Finance.

But Google has shown recent signs that it is starting to jettison unprofitable or distracting ventures on its books. Google is unplugging its free phone directory service 1-800-GOOG-411 and it is winding down its Google Groups topic discussion service next month.

This may not mean Google layoffs, but it does suggest that there's some new discipline at the big free-spending shop.

Analysts and investors will be tuning in to hear Google's assessment of its Android effort, which has started to outshine rival Apple's (AAPL - Get Report) iPhone. The push of ads into YouTube videos is also an area of interest as a potential new revenue stream.

Google shares have enjoyed a modest 10% rise in the past two months but remain down 13% for the year. The stock could certainly make up that lost ground with a solid two-part sales growth and profit story.

--Written by Scott Moritz in New York.

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