Will Google’s Earnings Report Be The Bright Spot In A Dreary Economy? (GOOG)

Following a two day rally, the Dow Jones Industrial Average fell on Thursday morning as caution over the state of the global economy due to an unexpectedly weak Chinese trade report gripped investors, and a weak earnings report from JPMorgan weighed on bank stocks.

Both the DASDAQ and the S&P 500 opened lower, with the CBOE Volatility Index trading above 32.  The CBOE Volatility Index is considered to be the best gauge of market fear.  Even with today’s decline, major averages are set to report their best weekly gains in a month.

While JPMorgan reported a lower net income, citing set backs in corporate deal making due to the European debt crisis, China also reported weaker than expected trade data, sparking renewed global economic concerns.  China’s trade surplus narrowed for the second consecutive month, as export and import growth fell below forecasts.

While banks continued to trend lower in mid-afternoon trading, tech stocks rose on news of Apple’s (AAPL) legal victory in Australia concerning a ban on sales of Samsung’s latest tablet computer.  AOL (AOL) was also trading higher in mid-afternoon trading amid the news that the struggling BlackBerry company is considering a possible sale to Yahoo (YHOO).

GOOG chart

Tech giant Google (GOOG) also saw upward momentum, as Google’s earnings report will be released after the closing bell.  While the industry leader is expected to report good numbers, there are some questions investors will want answered, including spending issue and response to increased competition.

A Look Ahead At Google’s Earnings Report

With Google (GOOG) scheduled to release earnings on Thursday, the call on the tech giant ahead of earnings will come down the core business.  Google could see upside potential due to an increase in costs per click.  Google’s earnings report is widely expected to be a bright spot in an otherwise drab economy.

While Google is widely expected to grow at an enviable rate for a corporation its size, the reaction by investors to the report will most likely depend on if the numbers indicate that the Internet’s advertising and search leader’s pace is slowing as fears mount over a second global recession.

Google has benefited even during the darkest days of the US recession, as advertisers shifted more of their budget for marketing to online advertising, finding the costs lower, and the marketing more targeted.  The July-September may have shown a slight slowdown for Google, with analysts predicting revenue to be 30% higher, down from a 32% increase during the period ranging from April-June.

Questions And Concerns For The Tech Giant

The company has been on a spending spree lately, a fact that has hampered earnings growth and dismayed some investors.  If Google surpasses the analysts’ earnings targets, it will most likely be due to reigning in expenses.  The past year has seen the company spending heavily on computers, employees, and projects.

There are also questions concerning the $12.5 billion acquisition of Motorola Mobility Inc, a deal announced two months ago but is under review by the United States Justice Department, which is looking over the deal to ensure competitiveness in the mobile phone market.

Investors would also like the company to address how it will handle increased competition from competing search engines, and social media sites such as Facebook.  Efforts to diversify beyond internet searches such as the company’s 3 ½ month old Plus service, as well as Google’s free software for phones, as well as the Android operating system will be closely watched by investors as well.

With Google’s earnings report  expected to be enviable by any standards, and with the company showing continued upside potential, Google may prove to be an excellent buy for your portfolio.  If you are considering adding Google to your portfolio, watch for buying opportunities in the days following the report’s release.