Google (GOOG, $535.60, up $19.51) reports 2Q earnings today after the market closes and it will be interesting once again to see where Google will trade at in after-hours and where it will open on Friday. We can expect Google to comment on a lot of things and its different types of businesses but there is one segment of their business that I’m really anxious to hear about.

The acquisition of DoubleClick and YouTube will be closely followed. Google acquired DoubleClick for $3.2 billion in March so this will be the first quarter that DoubleClick will figure into the equation. However it won’t be adding to the bottom line this quarter. Early estimates say that DoubleClick will cost Google $35 million as DoubleClick only contributed $65 million in revenue while incurring $100 million in expenses. These intergrations take time so the market may overlook this hiccup. YouTube is doing okay but is well short of getting the $300 million in video advertising this year that Google had planned for.

The big update I’m waiting to hear more on is the smart-phone market. Smart-phones get search, maps, mail, and YouTube on their device which means more revenue from ads delivered on those mobile handsets. Android is Google’s baby and will be the software that allows users to access even more of Google’s products. Google also plans on entering the handset market with a phone of its own and there is a rumor that Google is experiencing delays to its supposed fourth quarter launch. That could hurt the stock but Wall Street may choose to focus on the billions of dollars that Google expects to earn from the mobile market.

Here’s where it gets juicy. Back in April when Google last reported earnings the stock zoomed $86 the next day. The nearly 20% gain took the stock from $450 to $536. So what happens if Google can get another 20% gain? This would put the stock at $640.

Believe it or not, the July 600 calls (GOOGT, $1.85, up $0.65) were heavily traded. These calls expire on Friday so it would certainly be an all-or-nothing trade. If Google moves 10% then these calls expire worthless because it puts the stock at $588. If Google moves 15%, then it puts the stock at $615 and these calls would be worth at least $15. In other words, a $200 investment would be worth $1,500 if it plays out that way.

The August 600 calls (GOOHT, $8.00, up $3.00) were up 60% yesterday and had some pretty decent volume. This would clearly be the safer play but Google has shown in the past that we may not have seen the best of the company quite yet.

There is serious risk to the downside if Google fails to impress Wall Street, ones I’ve outlined, but ones that might also be overlooked. If Wells Fargo can jump 33% on its earnings why not Google?

Rick Rouse
Rick@OptionsMentoring.com