Majestic Research

The Wall Street Journal

Ahead of the Tape: Expect to See Google Clicking on All Cylinders

By Kevin Delaney
Published: January 31, 2007

Google is moving into print, radio and video advertising, but the company’s Web-search ad business still drives profits. That should please investors when Google reports fourth-quarter earnings today.

Analysts expect the search titan to report that earnings excluding one-time items rose 90% in the fourth quarter from a year earlier to $2.92 a share, according to Thomson Financial.

It shouldn’t be a surprise if Google beats expectations.

Google’s share of the global Web-search market rose during the fourth quarter. The Mountain View, Calif., company handled 47% of U.S. searches, up from 44% the prior quarter, according to comScore Networks Inc.

In its recent earnings conference call, Microsoft acknowledged losing some search market share. Yahoo said search revenue from its sites increased less than 10% from a year earlier. Google likely profited from their weakness, grabbing a bigger chunk of online-search dollars.

John Aiken, managing director of New York’s Majestic Research Corp., says consumers increasingly use online searches to check out products they buy offline. As a result, traditional retailers are spending more on search ads. Mr. Aiken estimates the average price advertisers paid for a search ad on Google rose 2.5% during the fourth quarter from the third quarter, roughly a 10% annualized increase.

Google also has an aptitude for tweaking its ad system to boost profits. Advertisers pay Google only when users click on their ads, so Google tries to display ads that consumers find most click-worthy. Majestic says Google has been grabbing more revenue by increasing the frequency of these clicks. In a project code-named Panama, Yahoo next week plans to change its ad system to mimic this approach.

Google’s record for pleasing Wall Street isn’t unblemished. Last year, because of tax issues, it fell short of the Street’s quarterly profit expectations. But recent trends suggest this is no time to search out a different Internet icon.