Buy Google Ahead Of Its Earnings Report

| About: Alphabet Inc. (GOOG)

Remember what happened when Google (NASDAQ:GOOG) reported blockbuster earnings last quarter?

The stock shot for the moon, gaining more than 20 percent just in a couple of weeks; currently trading 15 percent its 12-month peak, and 10 percent down from the beginning of the year -- trading below its 200 and 100 moving averages.

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While part of the decline can be attributed to the overall market correction, Google is facing its own issues:

1. Weak Economy: Google’s revenue comes mostly from sales of advertisement space, which are discretionary in company budgets. This means that a weak economy or an outright recession will make a big dent in Google’s revenue.

2. Move Into Manufacturing: With the purchase of Motorola Mobility (NYSE:MMI), Google is soon to bundle together its software with Motorola Mobility’s hardware, as Apple (NASDAQ:AAPL) has been doing with its iPhone.

While this strategic move may help Google to compete efficiently and effectively against Apple, it raises serious questions as to whether the company can become a good manufacturer and blend its business model well with Motorola Mobility’s.

Developing search engines and advertising and operating platform systems requires a more liberal and entrepreneurial organization that allows employees to experiment with new things under little supervision. Manufacturing mobile devices, on the other side, requires a less liberal organization that defines the different tasks employees must perform under extensive supervision, which includes close monitoring and control.

3. Regulation Issues: After settling regulation issues in the US, Google continues to face issues in Europe and Asia, especially Korea and China.

4. Increasing Competition: From Apple in the smartphone business, and from Yahoo (NASDAQ:YHOO) and America Online (NYSE:AOL) in the Internet advertising business.

Yet, we do believe that these issues are long-term rather than short-term; and given the stock’s sizable decline, we do believe that Google is a trading buy ahead of its earning report on Thursday.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.