Tech Check

Published: Wednesday, 15 Jul 2009 | 2:12 PM ET

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Google continues to be an enigma, making more money than anyone else as a tech company, a media company, a company generating enormous cash flow yet holding onto its wallet in a cost-control way this company has really never seen before.

And in a climate like this one, with expectations so low, and no one really having a sense of just how good or bad business is, or when a turnaround might gain traction in the market place, Google

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[GOOG  Loading...      ()   ] might actually be sitting pretty.

Investors certainly seem to think so. This was a sub-$400 stock just a few weeks ago. Today, Google continues in rally mode, along with the rest of tech, surging past $430.

Analysts suspect Google will report $5.06 a share in earnings on better than $4 billion in revenue, excluding traffic acquisition costs. Those are the headline numbers. But to get a better understanding of Google's business, you have to dig a little deeper into the report, and look for some key sign posts, which is what Citigroup's Mark Mahaney does with his always useful "cheat sheet."

Mahaney's numbers are a little below the Street, expecting $4.85 in non-GAAP EPS, on $3.968 billion. Against that back drop, he says that if Google can meet Street estimates in both categories, and beat his expectations, that could be viewed positively by investors. He also anticipates a 51.3 percent non-GAAP operating margin, and anything less could be a problem.

Paid Click growth should be up between 13 and 16 percent; Web Sites gross revenue should decline between 13 and 15 percent; Web Site traffic acquisition costs should rise between 5.6 and 6 percent; Network Sites gross revenue should come in between $1.59 billion and $1.66 billion; Network Sites traffic acquisition costs should grow between 75 and 76 percent; North American and International revenue should each be flat to down 5 percent, though Mahaney suspects they'll be off 2 percent. He's looking for CapEx spending to come in between $300 million and $500 million, though less than $300 million would be a bullish sign.

All this and Citi reiterates its "buy" on the shares with a $580 target.

Others are not so positive. Benchmark's Clayton Moran doesn't believe an "advertising bottom has been reached yet," and will remain slow through the summer; ThinkEquity's William Morrison says "the path ahead could be a bumpy one."

Indeed, just this morning, we're starting to see the effects of Microsoft's

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[MSFT  Loading...      ()   ] $100 million marketing blitz for its new search engine Bing. ComScore says Google's Search market share remained flat in June at 65 percent; Yahoo's

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[YHOO  Loading...      ()   ] share fell slightly to 19.6 percent; but Bing rose fractionally, from 8 percent to 8.4 percent, making it the only search engine that actually grew share. Even slight gains in this climate can be considered significant.

Google and Microsoft has been going at it recently, and I've detailed the back-and-forth over the past few weeks. Both companies have had issues creating new, effective revenue streams.

But Microsoft has had infinitely more success and has been far more effective at doing so. I'm not saying investors ought to count out Google. That would be silly. But take into account Microsoft's track record, spotty though it might be, and its enormous cash position, and its new found aggressive marketing behavior -- not just with Google, but certainly Apple too, and I have to believe the odds favor Microsoft right now.

It's kind of like comparing Apple

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[AAPL  Loading...      ()   ] and Research in Motion

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[RIMM  Loading...      ()   ]: RIM is doing great with Blackberry but that's all it has. Apple's got iPhone, Mac, iPod, iTunes, The App Store, a great OS; huge and MULTIPLE revenue streams, making Apple a far more diversified and better bet.

Same goes with Google versus Microsoft. Google is still a one-hit wonder with Search. Microsoft has Windows, Office, Xbox, Bing, enterprise, consumer. Argue with quality; argue with track record. But you can't argue with dominance in MULTIPLE areas.

Also, as Google and Microsoft continue to go at each other, it seems easier for Microsoft to come up with an effective Search competitor and a web-based operating system than it would be for Google to come up with an effective operating system and bring it to the web, and try to penetrate the consumer and enterprise markets. The skill sets favor Microsoft. The infrastructure favors Microsoft. And so does the investment environment.

Google's earnings will be interesting, and set the tone for Yahoo next week. And as important as they are, Google's earnings Thursday will only be a small piece of an ever-changing, and increasingly intriguing competitive puzzle.

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