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Holding Our Breath Before Google Reports Earnings

Tedra DeSue

NEW YORK ( TheStreet) -- Google is preparing to release its earnings for the first quarter of 2013 on Thursday.

As I await the release, I'm hoping it won't be tainted by some weird happening like those that have plagued the company for the last two quarters.

Furthermore, I will be turning a keen eye to GOOG's ad revenue performance. In recent weeks, I've come across research reports that indicate a new challenge is facing the Internet search giant's dominance in advertising. It has everything to do with mobile publishers including Facebook , Pandora and Twitter that are rapidly taking over the mobile display advertising market in the U.S.

Before I go into the details of this new phenomenon, I'll refresh your memory about the two last earnings reports that panicked many investors. The most recent occurred in January when the search engine giant put out a rare note headlined, "And now for a little accounting..." In a nutshell, the note explained that its fourth-quarter 2012 and year-end earnings could miss analysts' estimates.

The issue related to Google's historic acquisition of Motorola Mobility last year. Motorola Mobility's TV set-top box business, called Motorola Home, came with the deal, but was useless to Google because it did not fit its ecosystem. Google ended up selling the unit to the ARRIS Group for $2.35 billion.

Fortunately, this note didn't sink the stock. Google ended up reporting earnings that beat analysts' estimates, and it reported a profit.

Prior to that, when Google released its 2012 third-quarter earnings report in October, the little positive news was upstaged by the accidental early release of the report. Those results were horrid, as the company missed both sales and profit estimates.

The Facebook Threat

While I'm hoping anomalies like these will not occur ahead of Thursday's report, I have some concerns about how the company fared during the first quarter of the year. One of those concerns relates to the amount of revenue Google gets from its advertising business.

Consider this. Advertising revenue accounted for about 95% of Google's total revenues last year. Much of this total comes from search and display advertising. So if there are any declines, it will definitely affect the company's bottom line.

Ahead of Thursday's earnings release, several research firms have found that Google's display advertising business remains strong. However, they've also noted that Google is facing increasing competition.

In fact, research firm International Data Corp. last week released a report noting that as an ad network, Google is jockeying to stave off losing market share to mobile publishers including Facebook, Pandora and Twitter. They are all "rapidly taking over the mobile display advertising market in the U.S.," according to IDC.

The report acknowledged that in the past few years Google, as well as Apple , scooped up most of the business from mobile display ads. However, the tide is turning so that publishers now control the segment. IDC found that even The Weather Channel had strong sales last year as a mobile publisher.

This trend is expected to continue, according to IDC's Karsten Weide, who said, "Networks, especially independent ones, are entering a difficult phase in which, with an ever smaller share of revenue, they'll have to compete with publishers, which will only grow in strength."

To be clear, Google still dominates the market with gross revenue, holding 79% of the market share. The IDC found that publishers controlled 52% of U.S. mobile display ad spending in 2012, compared to the 39% they received in 2011.

On that same note, the IDC found that growth rates have slowed significantly, down from 195% in 2010 to 127% in 2011 to 68% in 2012. I'd like to see some clear guidance from Google as to its plans to maintain and/or improve its share considering the steady march of its competitors.

Google's ability to maintain market share may boil down to its Android operating system. It helped Google gain almost half of the market share for ad impression last year, according to Market Charts. I think Android will likely be the key contributor to any increase in Google's mobile search ad revenue. This may help it further maintain its dominant position. After all, it's all about monetizing the mobile user for companies these days.

Google's revenue topped $50 billion in 2012, which was a first for the company. The GAAP earnings per share were $8.62 compared to $8.22 in the fourth quarter of 2011. Non-GAAP EPS in the fourth quarter of 2012 was $10.65, compared to $9.50 in the fourth quarter of 2011.

For the first quarter of 2013, analysts are looking for Google's earnings per share to be $10.69 compared to the $10.08 the company posted for the first quarter of 2012.

Whatever the results, I hope to see no headline about an odd occurrence ahead of Thursday's earnings release after the bell!

--Written by Tedra DeSue in Atlanta

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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