Email | Print    Type Size  -  +

Gloom gathers ahead of Google results

The Net search giant on deck to report Thursday; apprehension soars as Google's stock sinks.

By Scott Moritz, writer
October 16, 2008: 4:51 AM ET

NEW YORK (Fortune) -- Google is set to report third-quarter earnings after the market closes Thursday, and investors aren't exactly placing bets on a big blowout. Despite a huge jump in September Internet searches related to the election and the widening credit crisis, the boost in traffic may not necessarily mean it's all good for Google.

It's been a tough year for the Net giant. Its shares have fallen by half since January as advertising spending cools amid a dismal economic climate. And while Google (GOOG, Fortune 500) has solidified its position as the dominant search site, its business is unavoidably pulled down by the outgoing tide in consumer and advertiser spending.

The search industry saw third-quarter queries grow 21.7% over the year-ago levels, with Google outpacing the field at a 35% growth clip, according to comScore data analyzed by Barclays' analyst Doug Anmuth. The latest month-to-month market share tally shows Google down less than a percentage point from August at 62.4%. No.2 rival Yahoo (YHOO, Fortune 500) was at 20%, according to the comScore numbers.

But American Technology Research analyst Rob Sanderson tells investors to brace themselves for a bit of a disappointment Thursday as Google delivers its results for the quarter.

"While we expect a slight shortfall, we anticipate the report will be better than feared," Sanderson writes in a Google preview note Wednesday. "The paid search model is proving to be very resilient in the face of macroeconomic headwinds, but does remain susceptible to the slow-down in overall ad spending," Sanderson writes.

Google is expected to post adjusted third-quarter earnings of $4.80 a share, up from $3.91 in the year-ago period. Analysts expect sales to be $4.05 billion, a 35% increase from last year's third-quarter level of $3.01 billion.

Looking ahead to the fourth quarter, analysts predict Google will see adjusted profit grow 8% sequentially to $5.19 a share. And consensus sales estimates call for a sequential increase of 9% to $4.42 billion.

Jeff Lindsay of Sanford Bernstein takes a cautiously optimistic view on Google's prospects. As solid as Google has been, there are three areas where "the current macro environment will have some effect," Lindsay writes in his report. One area is paid search, where conversions from searchers to buyers will fall and advertisers will feel the pinch. The second area is lower budgets amid pricing competition from TV, print and radio advertising. And third, Google's AdSense network continues to be weak.

With these factors in mind, Lindsay cut his 2009 sales growth target for Google to 23% from 30%.

As revenue slows, however, some see signs that Google is trying to dampen the impact by containing costs.

Google reduced its hiring effort in the second quarter adding 448 net new employees, about half the number the company hired in the December quarter and a mere fraction of the 2,100 people who signed on in the third quarter of 2007.

Google may claim it can't feel the pressure of the credit crisis drama on the other coast, but the hiring slowdown suggests otherwise. To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.