With the tech sector enjoying a modest stock-market recovery the last few months, today’s earnings report from Web giant Google Inc. (GOOG) is eagerly anticipated by investors and executives as a weathervane for the direction of the tech and telecom economy. Google reports its results for the quarter that ended March 31 after the close of U.S. markets today.
In general, analysts are wary. Google, which has beaten Wall Street expectations the last couple of quarters and continues to dominate the Web search rankings, is seeing its business of serving online text ads soften. While Google increased its lead in the U.S. search market by a few tenths of a percentage point in March, according to new statistics from ComScore, overall, people may be searching the Web less in the recession and companies are spending less on online ad words.
In the most recent quarter, revenue from ads on Google’s own sites jumped 22 percent over the same period a year before – but partner-site revenue growth languished, increasing only 4 percent over the Q4 2007 figure and essentially flattening quarter-to-quarter. That means that, as its core business slows, Google needs to find more internal profit centers – which it’s attempting to do by placing ads for the first time on popular Web services like Google News, Image Search, and the company’s business-and-finance portal.
Investors are also looking for clues to the plans for Google acquisitions like YouTube and Google Voice (née Grand Central), which have not yet contributed to the bottom line.
Poor results from Google could stop the tech rally in its tracks. Surprisingly strong earnings would probably fuel renewed buying. At this point investors are willing to look at anything short of outright failure as success.
“Traders could be in the mood to buy a well-regarded name if it doesn’t screw its quarter up too much,” wrote Steven Mallas in an earnings preview on BloggingStocks.