SAN FRANCISCO (AP) — Google's second-quarter earnings are likely to determine whether Internet search leader's stock extends a recent surge that has its price headed toward $1,000.
WHAT TO LOOK FOR: The report, due out after the stock market closes Thursday, comes as positive sentiment about Google is running high while Wall Street has grown disenchanted with rivals such as Apple Inc. and Facebook Inc. Google's stock touched a record high of $928 Monday, and has gained about 30 percent so far this year. The Standard & Poor's 500 index has climbed by about 18 percent during the same stretch.
Google Inc. has been making more money by maintaining its dominance of Internet search and online advertising while plumbing promising new opportunities in the rapidly growing mobile-device market through the distribution of its Android software.
Although Google gives away Android to device makers, the operating system features the company's search engine and other services. Those tie-ins have ensured Google's products, including email, maps and YouTube video, remain deeply ingrained in people's lives even as they spend more time on smartphones and tablets instead of personal computers.
Android powers more than 900 million devices worldwide, making it the mobile market leader.
Even so, the transition to mobile computing hasn't been entirely smooth for Google. That's because mobile ads aren't as lucrative as the marketing messages peddled on PCs, largely because the smaller screens of phones and tablets leave less space to get the messages across.
The phenomenon has caused Google's average ad price to decline from the previous year in six consecutive quarters, a trend that held down the company's stock for much of 2012. The worries about a persisting downturn in Google's ad rates, known as "cost per click," have eased as the magnitude of the decreases has lessened. In the first three months of this year, Google's average ad price fell 4 percent, the smallest drop during the six-quarter slump.
That raised hopes that it won't be much longer before Google's ad rates are rising again. Google is trying to make that happen more quickly by changing the way it sells ads to prod more marketers into buying spots on mobile devices at the same time they plan campaigns aimed at PCs. Some advertisers have already switched to Google's new pricing system. All marketers will be forced to adopt the new approach, known as "enhanced campaigns," on July 22.
Google's stock also has gotten a lift from the early enthusiasm for a new device called Glass that works like an Internet-connected computer worn on a user's head. The device looks like a pair of glasses and features a small display screen above the right eye that features information and imagery retrieved from the Internet. Glass can also be used to take video and pictures without tying up a user's hands. About 10,000 people who paid $1,500 apiece for an early version of Glass are currently testing the product. Glass isn't expected to be released to the mass market until next year.
The quarterly report also will update investors on Google's efforts to pare its losses at Motorola Mobility, a cellphone maker purchased for $12.5 billion 14 months ago.
Since Google assumed ownership, Motorola Mobility has posted losses totaling nearly $1.4 billion. Google has been laying off Motorola Mobility workers and cutting other costs to narrow its losses. Motorola Mobility also has been working on a new line-up of phones, including an upcoming model called "Moto X," in an attempt to boost its fortunes and recover some of the market share that it has lost since Apple released its trend-setting iPhone six years ago.
The window for Google's stock to break the $1,000 barrier might not be open for much longer. That's because the Mountain View, Calif., company reached a legal settlement to split its stock for the first time later this year. The split calls for a new class of "C'' stock with no voting power to be issued for each share of an existing category of Google's "A'' voting stock. The structure is designed to ensure that Google CEO Larry Page and his longtime colleague, company co-founder Sergey Brin, retain control over the business, even though they only currently own about 15 percent of Google's outstanding stock, combined.
The split is expected to cut the trading price of Google's stock roughly in half because it will nearly double the number of outstanding shares. Google hasn't set a precise timetable for completing the split, but it's expected to be done by the end of the year. Page and other Google executives may be asked for a status report on the stock split during Thursday's conference call discussing the second-quarter earnings.
WHY IT MATTERS: Google is a good way to monitor the health of digital commerce because it runs the Internet's largest advertising network and is now a major player in the mobile computing market. It's also one of the world's most powerful companies, so what happens to it can affect millions of people and businesses.
WHAT'S EXPECTED: Analysts, on average, expect earnings of $10.81 per share on revenue of $11.4 billion, according to FactSet. The earnings projection excludes the costs of employee stock compensation and the revenue figure excludes Google's advertising commissions.
LAST YEAR'S QUARTER: Google earned $2.8 billion, or $8.42 per share, in the same quarter of 2012. If not for expenses covering employee stock compensation and severance for Motorola Mobility workers, Google would have earned $10.12 per share. Revenue excluding ad commissions totaled $9.6 billion. Google owned Motorola Mobility for less than half of last year's quarter.