Google’s fourth-quarter earnings are expected to show the Internet search leader is doing better than ever, thanks to an online holiday shopping splurge that helped sell more advertising. The details are scheduled to be released after the stock market closes Thursday.
WHAT TO WATCH FOR: The October-December period is likely to mark the first time that Google Inc. has earned $3 billion in a single quarter. The main reason: more people were buying gifts on their computers and smartphones. Electronic commerce increased by about 15 percent from the 2010 holiday shopping season, according to the research firm comScore Inc.
The shopping spurred more Google searches as consumers looked for the best prices and things to do during the holidays. That led to more clicks on the advertising links that appear alongside the results, translating into more revenue for Google.
In the past few years, Google has diversified beyond search to sell more video ads and graphic-driven commercial messages to boost its earnings even higher.
Google probably faced its biggest challenges in Europe, where earnings were hurt by a weakening euro as the continent wrestled with unwieldy government debts.
The fourth-quarter earnings could be even better than analysts expect if Google eased its hiring at the end of the year. Through September, Google had already added nearly 7,000 workers in 2011 — the largest payroll expansion in the company’s 13-year history. Google CEO Larry Page indicated in October that the company had expanded its workforce more than he anticipated — a remark that could have foreshadowed a slight slowdown in new hires.
Since labor is one of Google’s biggest expenses, analysts will likely be pressing Page and other Google executives for information about the company’s hiring plans.
Another 19,000 workers from Motorola Mobility Holdings Inc. will be joining Google this year if U.S. and European regulators approve Google’s proposed $12./5 billion acquisition of the cell phone maker. The companies are hoping to close the deal early this year.
Motorola Mobility will give Google more than 17,000 prized patents, along with potential problems that could crimp future earnings. Motorola Mobility signaled the trouble earlier this month when it advised its fourth-quarter results will fall below analyst projections. That raised a red flag among investors already wondering how Google’s expertise in software will meld with a Motorola Mobility business that specializes in making devices.
Google has said it primarily wants Motorola Mobility for its patents. The portfolio is supposed to serve as a shield against a fusillade of lawsuits filed against various features in Google’s popular Android software, which is now used in more than 200 million devices.
Investors also will be looking for updates on the Plus service that Google unveiled nearly seven months ago as an alternative to Facebook’s social networking site. Google disclosed Plus had more than 40 million users in October, but hasn’t provided additional figures since then.
Facebook has more than 800 million users, so Plus has a long way to go before it poses a serious threat in social networking.
Google is trying to increase the usage of Plus with a series of changes introduced on its search engine last week. Among other things, Google’s search results now include recommendations about people and companies with Plus accounts. The new feature omits similar accounts on Facebook and Twitter’s short-messaging hub, even though those services have larger followings than Plus.
The exclusive listings about Plus accounts have renewed concerns that Google is abusing its dominance of Internet search to promote its own services while ignoring or downplaying other options from its rivals. Regulators in the U.S. and Europe already have been investigating whether Google has been rigging its search results in a way that stifles competition.
WHY IT MATTERS: As the Internet’s main gateway, Google is one of the world’s most powerful companies. Its fortunes and decisions have ripple effects on millions of people and companies.
WHAT’S EXPECTED: Analysts polled by FactSet expect earnings of $10.49 per share, excluding expenses for employee stock compensation, on revenue of $8.37 billion, after subtracting Google’s ad commissions.
LAST YEAR’S QUARTER: In the fourth quarter of 2010, Google earned $2.5 billion, or $7.81 per share, on revenue of $8.44 billion. Excluding stock compensation, Google earned $8.75 per share on revenue of $6.37 billion, after subtracting ad commissions.