RENE TILLMANN
Google Inc. reported strong fourth-quarter numbers on Thursday, beating analyst expectations and furnishing more proof that the online advertising market - which tends to mirror the health of the broader economy - is bouncing back.
Revenue at the world's most popular search engine jumped 17 per cent to $6.67-billion (U.S.) for the quarter ended Dec. 31, 2009, the company reported. The revenue increase was in line with what analysts had forecast, according to Thomson Reuters.
Adjusted earnings were $6.79 a share, compared to $5.10 in the fourth quarter of 2008. The web firm had been expected to report a 27 per cent increase in fourth-quarter earnings to $6.48 a share from the same quarter a year ago, according to Thomson Reuters.
However, revenue growth wasn't as strong as some investors had hoped, sending the company's shares down 5 per cent in after-hours trading.
Analysts also pointed to signs that Google was ramping up spending as a possible cause for concern, but said that overall the company continued to dominate the Internet search market and delivered a strong quarterly report that fell short of only Wall Street's most bullish forecasts.
"All of those things they report at a basic level were fine," said Martin Pyykkonen, senior analyst at Janco Partners. "The reason the stock is down is that it wasn't a blowout. I think the stock will recover. I don't think it will fall through the floor."
"Given that the global economy is still in the early days of recovery, this was an extraordinary end to the year," chief executive officer Eric Schmidt said in a statement. "Our performance in 2009 underscored the strength of our management team, the resilience of our business model and the pace of innovation within our product and engineering teams, which continued unabated throughout the downturn. As we enter 2010, we remain hugely optimistic about the internet and are continuing to invest heavily in technological innovation for the benefit not only of our users and customers, but also the wider web."
Much of the company's revenue increase is due to global economic conditions. Online advertising - the heart of Google's business - tends to fluctuate with the economy at large. After dropping during the recession, the advertising market is slowly coming back to life.
Even though Google didn't take as big a hit during the recession as many other companies, it didn't come out unscathed. For the first time in its history the company laid off employees early last year, cutting 100 human resources positions. Last year also marked the first time Google's quarterly revenue growth dipped below 10 per cent.
The company also saw competition increase in the search market, where it has been and still is dominant. Microsoft Corp. unveiled its newest search engine, Bing, last summer. The site surprised many observers by showing a significant increase in its early user base.
However, in absolute terms, Google still controls the majority of the online search market in many global markets. According to research firm comScore, Google controlled 65.7 per cent of the U.S. search market in December, up 0.1 per cent from the month previous. Its nearest competitor, Yahoo Inc. , controlled 17.3 per cent.
Analysts expect Google benefited from a strong holiday shopping season during the last quarter. Even though Google didn't sell anything directly during the period, it did act as a middleman between consumers and retailers.
"Early data indicates improving holiday ad budgets," JP Morgan analyst Imran Khan said in a note before Google released its fourth-quarter numbers. "Our channel checks indicate ad spend it recovering especially in the retail vertical this holiday season.
Google made headlines last week after it threatened to leave the Chinese market - one of the fastest-growing in the world. Company executives said the move was prompted by a cyberspying attack on it and more than 30 other companies, but Google also tied its decision to Beijing's demands that the company practice self-censorship. Although Google has yet to act on its threat, analysts are beginning to factor the impact of such a move into the company's bottom line.
Mr. Khan estimates that the Chinese market accounts for about 4 per cent of Google's international revenue. Typically, Google's revenue is almost evenly split between the U.S. and international market, with the latter growing slightly in the past few years.
Google shares fell about 5 per cent to $552.52 each in after-hours trade.
With files from Reuters