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Why Google Inc (GOOG)’s Big Weakness Is Mobile and How It Plans to Change That

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Google Inc (NASDAQ:GOOG)Is Google Inc (NASDAQ:GOOG) going to be the next Apple Inc. (NASDAQ:AAPL)? Apple’ stock kept rising like there’s no tomorrow until late 2012. Since then, due to the increasing competition from Samsung (Android) devices, the stock price is down about 30%. Google’s stock price, on the other hand, is still rising. The question is: Until when will Google Inc (NASDAQ:GOOG)’s stock price keep rising?

Many thought that the earnings call for the second quarter reported on July 18 would be the turning point. Google did present weak results (its operating income fell by approximately 4% to $3.12 billion) and the stock price did fall by as much as 4%.

However, by now the negative momentum caused by the weak earnings call has almost disappeared. Overall, in the past five days, the stock price decreased only 2.9%, which suggests that Google Inc (NASDAQ:GOOG) is still far away from the danger zone, unlike Apple Inc. (NASDAQ:AAPL).

That being said, I think the latest earnings call provides us an opportunity to review Google’s competitive advantages, main competitors, risks and opportunities. Is Google still a buy after July 18? This article summarizes my findings. Before answering the above question, let’s start with a brief overview of the latest earnings call.

Google’s latest earnings call: The good, the bad and the ugly

First, let’s start with the good news. Consolidated revenues came out at $14.11 billion, which represents a 19% year-over-year increase. Even better, core revenues (which exclude Motorola) grew 20% over last year. The bad news: although sales (excluding costs of payments to partners for traffic) came out at $11.10 billion, this was not enough to beat the street consensus of $11.38 billion, according to FactSet. The ugly part? Operating income fell 4%, to $3.12 billion. This happened mainly because the average cost per click (CPC) is falling as mobile traffic increases.

CPC for mobile ads is much lower compared to that of clicks coming from PCs. And since traffic from mobile devices is increasing, the overall cost per click had to go down. It fell by 6%,

Now, can Google Inc (NASDAQ:GOOG) minimize the cost difference between clicks from PCs and clicks from mobile devices? I believe it can. Unlike Apple (which may not be able to stop the increasing popularity of Android-based Samsung devices in emerging economies), Google may have more tools and choices to control its biggest problem: mobile monetization.

Below some concrete measures Google is about to take. Starting on July 22, advertisers using Google Inc (NASDAQ:GOOG) will be able to choose not to buy cell-phone ads, but will be required to buy tablet ads instead. This is the new AdWords program and it should help to, at least, limit the decline in overall cost per clicks.

There’s also the near release of the Moto X smartphone model, expected to go on sale this summer. If this launch is successful, it could steal significant market share from Apple Inc. (NASDAQ:AAPL) and Samsung in the smartphone business, and create a new cash cow for Google. The official presentation of the Moto X is Aug. 1 in New York, so stay tuned. At any rate, regardless of whether the Moto X is a success or not, the Android platform will continue to lead as the most popular mobile OS, and eventually this could help Google Inc (NASDAQ:GOOG) to increase the number of paid clicks, because mobile traffic could increase so much that it will eventually offset the negative effect of relatively cheaper mobile clicks.

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