Investors are betting on Google Inc's third-quarter results this week to show a recovery in revenue growth, pushing shares of the leading Web search engine to a 12-month high on Monday.

Chief Executive Eric Schmidt has declared the worst of the recession over, setting up expectations for third-quarter net revenue to show a modest increase over the second quarter. Google's revenue fell for the first time ever in the first quarter from the prior period, and held steady in the second quarter.

Google's stock rose 1.8 percent to a 52-week high of $525.76 early Monday, giving the company a market value of more than $160 billion, after a series of analysts projected that revenue would outpace average Wall Street estimates.

They're pricing in a pretty rosy picture, said Signal Hill Group analyst Todd Greenwald, who has a hold rating on the stock.

The average analyst forecast calls for revenue excluding traffic acquisition costs -- the portion of sales that Google shares with partners -- at roughly $4.23 billion, which would be a 3.9 percent sequential rise or 4.7 percent year on year.

Google is still a long way off from the supercharged, double-digit growth it once enjoyed, as efforts to reach into new markets, such as smartphones [ID:nN06420599] and Web display advertising [ID:nN18262808], take time to pay off.

Greenwald said Google could eventually return to revenue growth in the mid-20 percent range -- but that scenario had been factored into prices.

Shares are a little ahead of themselves, or even if they're not, they don't leave a lot of upside on the table, he said.

Scott Snyder, chief options strategist at TOS Advisors, a subsidiary of broker-dealer thinkorswim Inc, said some traders were pricing in a $15 move up or down -- which would be roughly 3 percent -- after the results, based on the values of their soon-to-expire October options.

A ROSY PICTURE?

October options go off the board on Friday after the close.

This pricing will most likely change as we get closer to the earnings day. Between now and Thursday there is still time for traders to position themselves, Snyder said.

After Google released its second quarter results, its shares fell 3 percent.

Google shares have risen roughly 79 percent since mid-March, outpacing the Nasdaq composite index's 68 percent rise and the Dow Jones industrial average's 51 percent gain.

Search will prove to be one of the first advertising mediums to benefit from an advertising recovery, wrote Credit Suisse analyst Spencer Wang in a recent note to investors, in which he increased his third quarter estimates.

Analysts expect Google to post profit per share, excluding special items, of $5.39 in the third quarter, according to Thomson Reuters I/B/E/S, versus $4.92 a year earlier.

Yahoo, a distant second to Google in the search advertising market though a leader in display advertising, is forecast to post earnings per share of just 7 cents versus 9 cents a year ago.

Google, which had a 64.6 percent share of the U.S. search market in August according to comScore, is facing renewed competition from Microsoft Corp, which has revamped it search engine and announced a partnership with Yahoo in July.

On the earnings call on Thursday, analysts will be looking for details on how competition is affecting Google's business, and updates on its efforts to cap expenses.

Cost per click (CPC) -- the price that advertisers pay to run ads alongside Google's search results -- has been under pressure in recent quarters and will also be closely watched.

Google's CPC fell 13 percent year over year in the second quarter, though it rose 5 percent from the previous quarter. A robust sequential increase in the third quarter would provide a clear sign that business is recovering, said Brigantine Advisors analyst Colin Gillis.

If we got another 5 percent lift, that would be great. If we got higher than that, 6 percent, 7 percent, 8 percent, that would be fantastic, Gillis said.

But he noted that a more modest CPC increase may not necessarily indicate a negative trend, given Google's expansion into overseas markets where ad rates are lower.

Broadpoint AmTech analyst Ben Schachter said recent comments by Schmidt about improving economic conditions in the United States and Europe boded well.

I don't think he would be making those kinds of comments if Google wasn't participating in the broad macro trends, Schachter said.

(Reporting by Alexei Oreskovic; Additional reporting by Doris Frankel in Chicago, Editing by Edwin Chan)

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