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Google (GOOG) Q3 Earnings Could Top Consensus

 October 16, 2012 02:03 PM

(By Mani) Google Inc. (NASDAQ:GOOG) is expected to report upbeat earnings when it reports its third quarter numbers on Oct.18.

Wall Street analysts look for earnings of $10.54 a share, according to analysts polled by Thomson Reuters. The consensus estimate represents an 8.4 percent increase from last year when GOOG earned $9.72 a share.

Google will look to maintain its momentum of above-consensus earnings in the past two quarters. The search giant's earnings have managed to top the Street view thrice in the preceding four quarters. The consensus estimate has dropped from $10.77 to the current estimate of $10.54 within the last three months.

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Quarterly revenues are expected to be $11.87 billion, a 58 percent growth from last year. In the same quarter last year, Google generated sales of $7.51 billion. The company has delivered double-digit revenue growth in the past four quarters, with average revenue growth of 29.6 percent.

"We expect GOOG to report 3Q results slightly above consensus, after the close on Thursday. Our estimates call for U.S. core revenues to slow 200 bps vs. 2Q on a slightly harder comp, with international revenues slowing 400 bps," Oppenheimer analyst Jason Helfstein said in a note to clients.

Investors would be looking for key metrics such as advertising revenues, cost per click (CPC) and would be eager to know how the Motorola Mobility unit is performing.

For the second quarter, Mountain View, California-based Google reported net income of $2.79 billion, or $8.42 a share, compared with $2.51 billion, or $7.68 a share, last year. Excluding items, it earned $10.12 a share, which topped the Street view of $10.04 per share for the quarter. Consolidated revenues for the quarter rose 35 percent to $12.21 billion.

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Google's mainstay advertising revenues for the quarter were up 21 percent. Aggregate paid clicks, which include clicks related to ads served on Google sites as well as sites of its AdSense partners, grew 42 percent and average cost-per-click, which includes clicks related to ads served on Google sites and the sites of AdSense partners, fell 16 percent.

During the third quarter, CPC pricing appears to be improving, with total spending accelerating, and a larger sample size is supportive of strong results.

"Aggregate third-party data shows CPCs trending up year-over-year. While we criticized this data in the past, a larger data set appears to show greater correlation to historical results. We view this as a directional indicator only. However, the trend has held in recent quarters and is supportive of stronger results year-over-year," Helfstein noted.

Google has been trying to cut costs at its Motorola Mobility unit. In mid-August, Google said it plans to cut about 4,000 jobs and close certain facilities at Motorola in an effort to return the loss making mobile devices unit to profitability. Google has also reportedly shaken up Motorola management by cutting 40 percent of its vice presidents.

The planned restructuring actions mean that Google would incur total charges to the tune of about $390 million. Of these, $300 million in severance-related charges will be recognized in the third quarter of 2012.

Investors will watch for an update on restructuring actions at Motorola. The search giant hints that it continues to evaluate further restructuring actions at the unit.

Wall Street has a bullish opinion on Google shares as 35 out of the 42 analysts covering the stock has a rating of "strong buy" or "buy," while the remaining seven of them recommend "hold."

Shares of Google, which has a market cap of $244 billion, gained more than 25 percent in the third quarter. They have been trading between $556.52 and $774.38 for the past 52-weeks.



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