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Google Earnings: All About Ads (Update 1)

Updated from 8:30 a.m. EDT to provide additional analysis in the third paragraph.

NEW YORK ( TheStreet) -- Google (GOOG - Get Report) is set to report second-quarter earnings Thursday after the close of trading and all eyes will continue to be on cost-per-clicks (CPCs). If that metric rises, it could give Google a boost.

Google generates the vast majority of its revenue via advertising. As more eyeballs are on Android devices, iPhones, tablets and other mobile platforms, the advertising business has gotten harder. There's less room on the screen and people are less likely to click on these ads as a result.

The company is trying to diversify away from being primarily an advertising business, having purchased Motorola last year. Last quarter, Google generated $1.02 billion in hardware revenue, 7% of first-quarter revenue. As excitement around the upcoming Moto X phone increases, that number is likely to increase.

Analysts polled by Thomson Reuters expect Google to report earnings of $10.79 a share on $14.42 billion in revenue, including traffic acquisition costs (TAC). Analysts surveyed by Estimize are looking for profit of $11.05 a share on $11.35 billion in sales, excluding TAC.

The Mountain View, Calif.-based company is trying to change that with its new Enhanced Campaign initiative, which could be a boost for the stock. Credit Suisse analyst Stephen Ju noted he's seeing an upward bias in CPCs ahead of the upgrade in July. Ju rates Google "outperform" with a $1,000 price target, and is optimistic on Google as it continues to adapt to new platforms.

"We remain optimistic on the company's positioning and ability to achieve our mid-teen revenue and growth forecasts, particularly within the context of the disruptive nature of smartphones and tablet adoption (as highlighted in GOOG: High Conviction on Estimates; Higher Conviction on Mobile Future)," Ju wrote in his note.

The Enhanced Campaign initiative officially starts on July 22.
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