Google Gears for Strong Quarter Despite Concerns

MOUNTAIN VIEW, California ( TheStreet) -- Google ( GOOG) looks set to report decent third-quarter results after markets close on Thursday, although Facebook-shaped clouds could be gathering on the horizon.

"We expect a strong quarter out of Google," explained Youssef Squali, an analyst at Jefferies, in a note. "Checks are suggesting that the company continues to gain share of search (on both mobile and desktop) and of display ad budgets."

Search engine rankings released by ComScore this week show that Google led the U.S. core search market in September with 65.3% market share, up 0.5 percentage points from the prior month, well ahead of Yahoo! ( YHOO) and Microsoft's ( MSFT) Bing! at 15.5% and 14.7%, respectively.

Jefferies' Squali, however, lauded Google's ability to bring in ad revenue. "While Google's share of U.S. queries is relatively flat at 65%, its share of ad dollars is more than 80%, driven by both volume and performance," he explained. "Volume for the third quarter was likely driven by high-teens growth in international clicks and high single-digit growth in U.S."

Google's real-time bidding technology for advertisers and media buyers is also driving revenue, according to Squali. "For display revenues, our checks indicate that Google's real-time bidding platform is on a tear," he wrote, adding that Google's display revenue grew an estimated 80% year over year in the second quarter.

Analysts surveyed by Thomson Reuters are looking for Google to report revenue of $7.21 billion and earnings of $8.74 a share, compared with revenue of $7.29 billion and earnings of $7.64 in the same period last year.

As always, Google's Traffic Acquisition Costs, better known as TAC, will be a key number for investors. TAC is the amount of money that the search giant pays to other sites for their traffic. Google's TAC came in at $1.81 billion, or 26% of advertising revenue, during the third quarter of 2010.

Google's TAC was $2 billion, about 29% of sales, in the company's second quarter.

At least one analyst, though, warned that clouds could be gathering over the Googleplex, most notably in the shape of social networker Facebook.

"With more than 30% of aggregate Internet minutes spent on Facebook, the Internet's center of gravity is shifting from Google to Facebook," explained Jordan Rohan, an analyst at Stifel Nicolaus, in a recent note. "The strategic position of Google is weakening."

Rohan also noted slowing growth in search advertising in some areas, as well as the risks posed by the company's ongoing $12.5 billion acquisition of Motorola Mobility ( MMI).

"The Motorola Mobility acquisition could distract senior management, fail to protect Android, lead Google into the intensely competitive hardware business, and keep Google from returning capital to shareholders," he warned.

Google, however, sees Motorola as a big leg up in the booming smartphone market, where Android is locked in a fierce battle with Apple's ( AAPL) iOS. Motorola's 17,500 Android patents are at the core of Google's bid for the handset maker, marking an attempt to significantly bolster the Internet giant's modest patent portfolio.

Google shares closed up $5.32, or 0.98%, at $548.5 on Wednesday.

--Written by James Rogers in New York.

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