Google Q4 Grows on Paid Clicks, Strong Shopping Season

By Clint Boulton  |  Posted 2010-01-21

Google faces high expectations for its fourth quarter earnings Jan. 21, as the consensus among Thomson Reuters analysts pegs the search engine to post $6.45 per share and $4.9 billion in sales on the strength of a strong holiday shopping season.

So confident are financial analysts in Google's Q4 performance that Piper Jaffray analyst Gene Munster believes the consensus could be shorting Google, whose paid click data suggest the company could earn $6.57 per share on sales of $5.01 billion.

Munster wrote in a Jan. 20 research note that the final month of third-party paid click data indicates Google's Q4 U.S. paid clicks ended up 16 percent quarter-over-quarter, suggesting Google will post earnings 2 percent ahead of Wall Street estimates.

His firm is maintaining its overweight rating and $700 price target for the leading search engine, which continues to grow U.S. search share versus Microsoft Bing and the fading Yahoo.

BroadPoint Amtech's Benjamin Schachter meanwhile said he is increasing his Q4 revenue sequential growth estimate to 14 percent from 12 percent, and the company's Q4 EPS estimate to $6.92.

Even if Google merely meets Wall Street expectations, it will add up to a sales growth of about 16 percent from the Q4 2009, when Google earned $5.10 a share. Chalk up the growth to Google's driving ad spending forward even as businesses held onto their wallets during the recession.

Key to this was the 2009 e-commerce shopping season, for which research firms such as comScoresaid e-commerce sales totaled $29.1 billion, a 4-percent increase versus the same period last year.

Schachter noted that Google is getting high click-through-rates and high average CPA because of large transactions for product listing ads, image ads purchased on a cost-per-action basis. Also doing well are product extension and sitelink ads, image ads purchased on a CPC basis that provide multiple links to pages within an advertiser's Web site.

"These new ad formats significantly increase coverage/click-through-rates on the SERP [search engine results pages] largely because advertising images and additional CPC links cover a much higher percentage of a given SERP," Schachter explained. YouTube and DoubleClick display ads are also expected to boost Google's Q4.

Google will host its earnings call after it reports Q4 earnings today. Mobile has been a hot topic for Google on earnings calls for the past one-year-plus since smartphones based on Google's Android operating system began hitting the market. Schachter said he expects "interest on the call" on Google's Nexus One smartphone, which it began selling through its Webstore Jan. 5.

"We expect it will take several quarters before mobile (either mobile search or sales of the Nexus One) will have a meaningful impact on Google's financials, but already we believe investors are somewhat concerned about the possible dilutive effect to margins of Google selling hardware going forward," Schachter wrote.

Google can't bask in the glow of cheery Q4 earnings. The company must contend with its strained relations with China, where it has stopped censoring its search site and is threatening to exit entirely after a hack attack on Gmail accounts.

Though analysts say Google only earned $300 million in revenues in China in 2009, the ceiling is high because the country has more than 360 million Web users. Indeed, Google already cancelled sales of Android-based phones in China, casting doubt on the viability of Android there.

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