Google’s 3Q Earnings: There’s Treasure In Search

When Google (Nasdaq: GOOG), the No. 1 search engine, reports third-quarter results next Thursday, it’s likely to prove once again that being No. 1 in the Internet age is like mining gold.

Investors won’t be surprised if the Mountain View, Calif.-based company exceeds estimates for the quarter and issues a bullish forecast for the future.

Sales of phones using its Android OS are booming, and rival Apple (Nasdaq: AAPL), the world's most valuable technology company, with the iPhone 5, has proved that features like Google Maps are essential to smartphone users.

To be sure, Google itself is in the smartphone business now, having acquired Motorola Mobility Holdings for $12.5 billion in May after nearly a year of waiting.

To make that acquisition more profitable, Google has started to carry out layoffs and trim Motorola into better shape to compete with Apple, Samsung Electronics (Seoul: 005930) and other rivals in the sector.

Google’s third-quarter net income is expected to rise nearly 9 percent to $3.45 billion, or $10.56 a share, from $3.18 billion, or $9.72 a share, a year ago. Revenue is expected to soar 59 percent to a record $11.92 billion.

Co-founder and CEO Larry Page, who’s expected to brief investors, will likely discuss prospects for the fourth quarter and next year as well as answer questions about potential problems.

In August, Google paid a $22.5 million penalty to the U.S. Federal Trade Commission for violating user privacy, a record fine. The company has been under investigation by the FTC as well as the U.S. Department of Justice and the European Commission for alleged antitrust abuses.

Google also has been involved in extensive patent lawsuits with Apple and other companies over its intellectual property.

As well, besides competing with Apple and Samsung in the smartphone market, Google has also started to sell its own Nexus tablet to battle the iPad. It’s likely Page will be asked about Nexus sales if they aren’t detailed in the financial report.

This week Google also announced a new campaign to bolster Adwords by offering a credit card from MasterCard Inc. (NYSE: MA) in the U.S. and UK to advertisers.

Meanwhile, competitor Yahoo (Nasdaq: YHOO), the No. 3 search engine, is now under new management and could see a surge of new cash as a result of agreements to sell investments in Chinese and Japanese Internet companies.

That’s a reason why some analysts expect Google’s profits to taper off somewhat going ahead. Standard & Poor’s Scott Kessler worries that Motorola may slow growth, and he estimates overall growth next year will moderate to 18 percent from 22 percent for all of 2012.

Kessler projects a target price of $800 for Google, not all that much higher than its recent prices.

Shares of Google closed Wednesday at $744.56, down up 47 cents but, down from their record high of $774.38 set last Friday. They’ve gained 15 percent this year and 39 percent over the past 52 weeks.