Google (NASDAQ:GOOG) will report third-quarter earnings after the bell Oct. 13, and while financial analysts are expecting the search engine provider to reveal a solid quarter overall, they will certainly be grilling Google on its pending acquisition of Motorola Mobility (NYSE:MMI), as well as momentum for its new social network.
Google's third-quarter net revenue is expected to increase 32 percent to $7.21 billion from Q3 2010 on earnings per share of $8.74.
However, some analysts expect more from the company, whose CEO Larry Page has placed big bets since taking over the reins from Eric Schmidt in April. Piper Jaffray analyst Gene Munster said he expects Google will beat the street's estimate by 1 to 2 percent and come in line with EPS expectations.
"The bottom line is that we believe Google's core search business, including paid search return improvements, and display business (including YouTube) are performing well and will carry the momentum from Q2 into Q3," Munster wrote in an Oct. 11 research note.
The analyst noted that while Google is still months away from acquiring Motorola Mobility, investors are trying to hash out the impact of the acquisition on Google's margins. Munster believes that operating margins for all of 2012 would dive from 46 percent to the low 30 percent, dragging EPS to low single digits.
Google agreed to acquire Motorola Mobility Aug. 15 for $12.5 billion to acquire the Android OEM's treasure trove of wireless and other technology patents. The company is facing some normal resistance to the deal from the U.S. Justice Department, which is investigating it for possible antitrust implications.
More broadly, Google is also weathering antitrust scrutiny from the European Commission and the Justice Department, which are looking into the company's search practices. Google Executive Chairman Schmidt last month testified before Congress, defending the company's business practices.
Page will also be pressed to give updates on the membership growth of the Google+ social network, which he said during the Q2 earnings call had racked up 10 million users in mid-July after only launching June 28.
Google+ opened to public beta Sept. 20, and the network has seen its share of traffic spikes and lulls. Yet Global Equities Research analyst Trip Chowdry believes Google+ is gaining traction on the strength of strong buzz and new features, in spite of Facebook and its massive network of 800 million users.
"Google Plus is off to a very strong start, with probably more than 55 million user signups so far," Chowdry wrote. "Google may launch many more new Google Plus service offerings within the next 3 to 6 months."
Chowdry raised his price target on from $650 to $700, thanks to Google+'s popularity and YouTube's TrueView advertising format, which he said helped the video sharing Website see 5 to 10 percent ad spending growth sequentially. Looking forward, Chowdry raised his 2011 EPS estimate for Google to $36.37 from $35.75, and 2012 EPS estimate to $47.83 from $45.33.
However, all bets are off in the face of a recession. Munster noted that when people spend less, the conversion from clicks and the aggregate number of clicks can slow, resulting in slower paid click growth and declining cost-per-clicks.
"While it is difficult to predict whether or not we will enter a recession and the potential severity of one, we believe the reality is Google's 21 percent year-over-year projected growth for 2012 would likely need to come down if we were to enter a recession," he wrote.