Google's fourth-quarter earnings report should provide a barometer on
how much more advertising shifted to the Internet during the holiday
shopping season.
The results, due out after the stock market closes
Tuesday, will also give investors a better sense on how the growing
popularity of smartphones and tablet computers is affecting the prices
in the digital advertising market.
Advertisers so far haven't been
willing to pay as much to market their wares on mobile devices as they
are on laptop and desktop computers because of the disparity in screen
sizes. That factor has been cited as the main reason why Google's
average ad prices have fallen from the previous year for four
consecutive years, a streak that analysts believe will be extended when
the company breaks down its results for the final three months of last
year.
Despite the downturn in ad prices, Google's earnings have
still been rising because the total number of clicks on the ads has been
steadily climbing. Most of Google's advertising deals call for the
company to get paid by the click.
Comparisons to Google's
fourth-quarter performance in the previous year will be muddied by the
company's $12.4 billion acquisition of Motorola Mobility Holdings, which
was completed eight months ago. Motorola has been losing money, so it
will likely lower Google's fourth-quarter earnings compared to 2011
while boosting the total revenue substantially higher.
To
complicate matters further, Google last month agreed to sell a Motorola
division that makes cable-TV set-top boxes for $2.35 billion. Although
the deal won't be completed until later this year, Google says
accounting rules require the company to classify the set-top box
division as a discontinued operation that doesn't count in the
fourth-quarter results.
Google Inc. suspects most analysts who
follow the company still included the set-top box division when they
were drawing up their fourth-quarter projections. If that's true, the
analyst forecasts that steer investor expectations could be envisioning
substantially more revenue than Google will report.
In the third
quarter of last year, the set-top box division generated an operating
profit of $25 million on revenue of $797 million
Analysts, on
average, foresee Google earning $10.57 per share on revenue of nearly
$12.4 billion, according to a survey by FactSet. The earnings
projections subtracts Google's expenses for employee stock compensation
and the revenue forecast reflects how much the company has left after
paying commissions to its advertising partners.