Google Inc. (NASDAQ:GOOG) will soon report its third quarter earnings on the 16th of October and all eyes are on the anticipated report, which will decide which company is the second largest in America, ExxonMobil or Google. With the oil industry under a dark cloud, it’s up to Google now to impress the market with great numbers and take the second place.
Currently there are a number of predictions and estimates by analysts about what the report on Google’s third quarter earnings is likely to reveal. Some speculate that the cheap Ad clicks are likely to hurt Google’s numbers as its profitability is still largely dependent on advertisements. Even though it has many ongoing and upcoming projects in different fields of technology the company’s major share of revenue depends on advertisement; the share is as high as 90%. Google recently announced that its Google Express will become a paid service, but still it will be its ad revenue that will give the tech giant its major chunk of profits.
This huge dependency on ad revenue is the reason why Google comes under fire time and time again with Tim Cook accusing Schmidt of selling its user data to companies. Even though Google has been trying extremely hard to reduce this strong dependency, it has only come down from 96% after a good many years to a 90%. It seems like the Google Car which will be self-driving needs to come out soon to speed things up because the organic reduction in ad revenue dependence is too slow.
Google Inc. has been investing in companies, which can potentially help it grow; it has spent around $21.5 Billion in the last four years in buying more than a hundred companies. The public only knows about a few famous acquisitions. The 111 companies, which have come under the umbrella of Google, need to prove that Google’s investments have been wise. Sadly, most of these companies do not have any major impact on revenue contribution.
However, Google is definitely moving into the hardware world and could come directly in competition with Apple’s HomeKit concept of the Internet of Things. The company has offered the Google Chromecast, which by far, is the best gadget introduced by Google for HDMI viewing and Google Nest, which is a smart thermostat equivalent to Apple’s August in price as well as value offering. It has invested in Deepmind technologies, Skybox which is a satellite imaging specialist and Dropcam, makers of security cameras.
It has also divested and not only invested in companies. Google Inc. (NASDAQ:GOOGL) parted ways with Motorola which was a load on its earnings; however the revenue growth still isn’t up to par if we take out the Motorola effect. The earnings per share as well as a slow revenue growth could mean Google is maturing and these numbers would remain steady and unimpressive. Google’s free cash flow is also nothing to write home about as its capital expenses have increased steadily without an increasing cash reserve. The cash flow reserve is by no means meager; however it hasn’t been increasing as much as Google’s expenses.
