Q3 – I’m feeling Lucky!
Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
This Thursday Google (NASDAQ: GOOG) will release its Q3 results. This is particularly significant as this will be the first full quarter where Google has held Motorola Mobility. The results will also be significant as Google will have to justify the sharp increase in its stock price over the recent past.
Why does it matter? Well, Google is a good company to monitor the health of the electronic commerce industry because it runs the world’s largest advertising network. And also, the fact that it is one of the most powerful companies in the world also helps, meaning it affects a lot of people and a lot of other companies in turn.
It is because of this that Google’s results for Q3 may be a little hard to decipher. Motorola Mobility is expected to boost the company’s revenues by $3 billion and drag down the company’s earnings as well. That’s mainly because Motorola is facing major losses. This is a problem that Google intends to tackle by laying off about 20% of Motorola’s workforce – about 4000 people. Google also plans to shut down 1/3rd of the device makers’ offices and plants. These number approximately 90. These cutbacks will cost approximately $400 million in accounting charges during Q3.
Let’s see what happened with the Internet giant last year during the same quarter. Google earned $2.7 billion, or $8.33 per share, at the same time in 2011. Earnings per share were $9.72 after deducting 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.
Advertising revenue will be one of the key areas of focus when the results come out on Thursday. Advertising revenue has grown by at least 21% from the previous year in each of the previous ten quarters, so it’ll be a poor show if the revenue numbers don’t perform as well as expected.
Investors had been fretting about a decline in the average price for ads that appear alongside Google's search results, but those concerns have been allayed as it has become apparent that the company is more than making up for the decrease thanks to 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, according to JPMorgan analyst Doug Anmuth.
Android software is another area that Google has benefited from. It currently powers nearly 500 million smartphones and tablets. And forget the fact that Google gives away the Android OS for free to smartphone makers. The fact of the matter is that it brings in a lot more advertising revenue because the OS increases the use of Google-made applications and the Google search engine. According to the company, about 1.3 million Android devices are being activated daily.
The third quarter also marked a period where Google forayed into the tablet market with the device Nexus 7. This was a move to compete mainly with Amazon.com's Kindle Fire and the larger iPad made by Apple (NASDAQ: AAPL). However, Apple reducing the size of the iPad may put some heat on the Internet Search Giant. Indeed, Apple has confirmed an event for October 23rd with the tagline “We’ve got a little more to show you.” This is expected to be the launch of the iPad mini. Apple’s shares rallied upon this news, even after the company’s stock has been under pressure in the more recent past. The share price rose about 2% and adds on to two straight days of small gains.
So what is it that investors expect of Google for this quarter? Quite a bit, if I’m to be honest – earnings of $10.63 per share are expected on revenue of $11.3 billion according to Factset. So now let’s see if the 800 pound gorilla of the internet can deliver.
ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.