Google’s Earnings: The Search Engine That Could
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The Fiscal Times
January 23, 2013

Last week was earnings week for the big banks; this week, it is the turn of technology companies to take their turn in the spotlight. And for some of them – notably former market superstar Apple (NASDAQ: AAPL) – that may prove to be a rather uncomfortable place to be.

Once, it was the big banks whose outlook was almost perilously uncertain and opaque. Now, despite the post-crisis flurry of regulation that bankers continue to gripe about, most large financial institutions are putting the past behind them, settling legacy issues like contentious litigation surrounding mortgages, and posting healthy gains in revenue absent any of those pesky one-time charges. True, returns on equity still aren’t what they once were, but that’s not the end of the world.

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The technology universe, however, offers a more muddled outlook, and that may be why the Nasdaq index has lagged in recent weeks as other major market indicators have either set new highs (the Russell 2000) or broken above technical barriers and into territory not seen in months (the S&P 500). For the year, the Nasdaq Composite index is up about 4.5 percent, while the S&P 500 has risen closer to 5 percent and the Dow Jones industrial average has climbed 5.24 percent.

Trying to anticipate what kind of earnings will come from the technology universe is tricky, given the very different issues affecting various parts of that world. On the one hand, the magnitude of the decline in Intel’s (NASDAQ: INTC) earnings startled even some critics, serving as a reminder of just how gloomy the outlook is for the personal computing industry. (The semiconductor manufacturer issued a profits warning for 2013, and cautioned that its margins may take a beating.) AMD (NYSE: AMD) followed suit, although the magnitude of its fourth-quarter loss wasn’t as great as analysts had anticipated.

And then came Google’s (NASDAQ: GOOG) results, announced late yesterday. The bottom line of $10.59 a share, excluding some items, beat analysts’ expectations of $10.42 a share. While revenue growth was an impressive 36 percent, it didn’t measure up to what analysts had been looking for, at least once traffic acquisition costs were removed from the equation.

There are upsides that warrant a degree of optimism, though: The company announced an uptick in advertising and its average cost per click – what advertisers fork over to Google every time you or I click on one of those buttons on a Google search page or an ad on our Gmail accounts – fell 6 percent, an improvement over the 15 percent slide in the third quarter. That encouraged analysts who worried that the shift from computers to mobile devices would wallop Google’s business.

"We come out of the fourth quarter feeling better about Google's mobile transition and segment growth rate going forward," J.P. Morgan Securities analyst Doug Anmuth said in a note to clients cited by Reuters.

Google’s shares gained nearly 6 percent Wednesday as the markets rose about 0.5 percent, but it will be hard for technology stocks as a group to keep up with the broader market, much less outperform, without strong numbers Wednesday afternoon from Apple.

Business journalist Suzanne McGee spent more than 13 years at The Wall Street Journal before turning to freelance writing. Author of the book Chasing Goldman Sachs, she has written for Barron’s, The Financial Times, and Institutional Investor.