Digital advertising dominance: The outlook for Google’s Q3 earnings

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Google’s dominance in the digital advertising market helps it with a healthy revenue growth rate

Google (GOOG)(GOOGL) has long been able to establish itself as an undisputed leader in the digital advertising market. It has been able to maintain its leadership in a number of sub-industries, like desktop search and display advertising, mobile advertising, video advertising with YouTube, and smartphone operating system with Android. Google’s expected to announce its 3Q14 earnings on October 16. Its earnings are often a barometer of the Internet industry’s health, so we should keenly watch Google’s results.

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Google’s 2Q14 results were mixed. Although the company’s revenues of $15.96 billion were better than analysts’ expectations of $15.61 billion, its earnings per share (or EPS) of $6.08 were below analysts’ expectations of $6.24. As the chart below shows, Google has been able to maintain a healthy year-over-year revenue growth rate for its advertising business.

Google revenue growth rate

Google’s losing the mobile battle to Facebook

The mobile platform has become an important source of advertising for Internet companies. According to a report from BI Intelligence, the mobile advertising market should grow at a compound annual growth rate (or CAGR) of about 50% between 2013 and 2018. Meanwhile, the other growth areas in the digital advertising market—such as the social and desktop video advertising markets—should grow at 18% and 15% CAGRs, respectively. So the mobile advertising market’s growth potential is unmatched.

Google’s losing the mobile advertising battle to Facebook (FB). According to a report from eMarketer, Facebook’s share of global mobile advertising revenues could increase from just 5% in 2012 to about 22% in 2014. Meanwhile, Google’s share could decline from 53% in 2012 to 47% by 2014. Even Twitter’s (TWTR) share could increase from 1.5% in 2012 to 2.6% in 2014, while Pandora’s (P) share could decline. The loss of mobile advertising market share could certainly have an impact on Google’s revenue growth. We could see some signs of this loss in the company’s third quarter results.

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