The company behind the world's most popular search engine reports earnings this week, and investors are finding cause for optimism.
Google Inc. will announce its third-quarter earnings results on Thursday after market close. The company has been on a bit of an upswing lately, with its share price on the Nasdaq jumping to $745 (U.S.) from $576 in the past three months.
The renewed enthusiasm surrounding the search engine is in large part due to its performance against some of its biggest rivals. Recently, the research firm eMarketer predicted that Google will soon surpass Facebook in display-ad revenue (Facebook had passed Google in the same metric last year). The turnaround underscores just how much advertisers have changed their views on where web ads are going. For years, many observers expected Facebook's social-based approach to the web – and its massive store of user information – would make it a far more compelling alternative for marketers. Instead, many of those marketers appear to be spending their money with Google, likely based on a belief that, when users visit the search engine, they are more likely to be in the mood to purchase something. As eMarketer points out, though, both Facebook and Google are still seeing display-ad revenue grow.
Google has also gained from its rivals' missteps. The company's Google Maps software was recently booted as the default maps application on Apple's phones. Instead, Apple decided to build its own maps software, which was widely criticized for being incomplete and rife with bugs. Still, the question investors will have this week when they see Google's numbers will be no different than in previous quarters: Can the company generate meaningful revenue from sources other than its core search advertising business?
In particular, investors will want to hear how Google plans to make profits from its Android software, which it currently hands over to third-party device manufacturers virtually for free. The company recently began marketing another Google-branded tablet, smartphone and media server hardware, and although it's still early going, any signs that these devices are gaining traction will make investors happy.
Also on the Android front, Google may shine a light on how its $12.5-billion purchase of Motorola Mobility is starting to affect the business. Many observers speculated that the acquisition was made in large part to give Google a war chest of patents, as it fights off potential intellectual property theft lawsuits. Some analysts will also want to know how Samsung's recent courtroom woes have affected Google's Android strategy. Samsung, the world's biggest maker of Android handsets has recently lost court cases in which rival Apple contended the company stole design ideas from the iPhone and iPad.
Google's earnings also tend to act as an indicator of larger economic spending, since advertising spending fluctuates with the wider economy. As such, a decent quarter from the search engine will be seen as good news for the economy as a whole.