Google Earnings Could Spark Tech Rally
Google Inc. reports earnings for the fourth quarter on Wednesday. The following is a summary of key developments and analyst opinion related to the period.OVERVIEW: Google, the most-used U.S. search engine, continued to gain share of queries during the quarter. More searches translate into greater revenue from text ads that appear on Google's own and partner Web sites. The Mountain View, Calif.-based company extended its reach by starting to sell advertising space in nearly 100 magazines, 50 newspapers and 700 radio stations. In an move to defend its massive book-scanning plan from copyright lawsuits, Google subpoenaed information about book scanning and search activities by competitors Microsoft Corp., Amazon.com Inc. and Yahoo Inc., among others. Yahoo and Amazon rejected the request. Google also added free Web-based word processing and spreadsheet software to site, a move that could threaten Microsoft Corp.'s dominant Office desktop programs. The company promoted its online payment system, Checkout, with discounts and promotions during the holiday shopping season, a move that threatens eBay Inc.'s competing system, PayPal. But the biggest deal by far was the company's acquisition of YouTube, a viral video-sharing site, for $1.76 billion. Without providing details, Google disclosed that its own video service was sued for copyright infringement during the quarter. Google and YouTube both made a flurry of content distribution deals with record labels just before the acquisition, and it remains to be seen whether the YouTube buyout will spark more lawsuits. Google said it set aside more than $200 million in stock from the deal, which it could possibly use toward copyright-related legal bills. BY THE NUMBERS: Analysts polled by Thomson Financial expect Google to earn $2.90 per share on $2.19 billion in revenue. For the fiscal year, analysts are looking for a profit of $10.32 on sales of $7.25 billion. ANALYST TAKE: In a Jan. 16 note to investors, Lehman Brothers analyst Douglas Anmuth wrote that Google's gain in market share may help push results above Wall Street's expectations. The company also tweaked its search-ad recipe to show more relevant ads on shopping-related searches, which may have boosted results during the holiday shopping rush. "We continue to believe that the combination of personalization and behavioral targeting will serve as a major driver for online advertising over time," Anmuth wrote, lauding Google's improvements on these fronts. The analyst also wrote that he expects Google's international business, which grew faster than domestic business in the third quarter, remained strong. A weaker U.S. dollar during the three-month period will also fuel revenue growth, he wrote. Anmuth reiterated his "Overweight" rating and $560 price target on the stock. Citigroup analyst Mark Mahaney voiced concerns about how big a bite Checkout promotions and the YouTube integration might take out of earnings, but emphasized that the core business would not be responsible for any shortfalls. Mahaney also noted market share gains and foreign exchange trends. To support his "Buy" rating and $600 price target, the analyst also cited Google's increasingly popular non-search products, such as the Gmail e-mail service and Picasa photo organization software, distribution deals with Dell Inc. and others as well as the addition of behavioral targeting to the search-ad algorithm. STOCK PERFORMANCE: Shares of Google rose 15 percent during the quarter, ending December at $460.48 on the Nasdaq. In the past 52 weeks, the stock traded as high as $513 and as low as $331.55.
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