Ahead of the Bell: Google's 2Q report

Google's 2nd-quarter earnings, ad trends likely to determine whether stock extends surge

Associated Press

SAN FRANCISCO (AP) -- Google's second-quarter earnings report Thursday could result in the search leader's stock exceeding $1,000 for the first time.

The report, due out after the stock market closes, 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 27 percent so far this year. The Standard & Poor's 500 index has climbed by about 15 percent during the same stretch.

If Google reports a good quarter, the stock could extend the rally.

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 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 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.

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