Google to gain from ad momentum

Jan. 22, 2013, 6:00 a.m. EST

Google expected to gain from ad momentum

Confusion over estimates arising from sale of Motorola Home unit

 

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By Benjamin Pimentel, MarketWatch

SAN FRANCISCO (MarketWatch) — Google Inc. is expected to post solid revenue and profit gains on Tuesday afternoon, as analysts cited steady growth in online advertising and a strengthening position in the mobile market.

Reuters

Google will report fourth-quarter results on Tuesday afternoon.

But some confusion has emerged around Google’s (NASDAQ:GOOG) fourth-quarter report, set for after the closing bell, after the company warned on Friday that many Wall Street analysts had not adjusted their estimates to reflect the impact of the pending sale of the Motorola Home business. The unit, which makes set-top boxes for TVs, is being sold to Arris for $2.35 billion.
As a result of the transaction, Google will present results from that business as “discontinued operations,” according to a blog post on Friday by company Chief Accountant Brent Callinicos.
It remains unclear if the consensus estimates for the quarter reflect the sale of the Home business. A Google spokeswoman said the company will not comment on the matter beyond the blog post.
Analysts polled by FactSet are expecting the company to report a profit of $10.57 a share on revenue of $12.38 billion for the fourth quarter. The compares with a profit of $9.50 a share on revenue of $8.13 billion for the same period last year.
Some analysts have revised their estimates to reflect the pending deal. In a note to clients on Thursday, Nomura analyst Brian Nowak reduced his revenue estimate for the quarter by $915 million.
In any case, the disagreements over estimates have underscored the ongoing impact of Google’s acquisition of Motorola Mobility. In its last earnings report in October, Google missed Wall Street’s estimates partly because of the impact of a large operating loss at the mobile device maker.

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Google shares plummeted as a result of the report, and the stock has gained back only about 1% since then.
Still, many analysts are optimistic that the Internet powerhouse will at least put out in-line results for its core businesses for the fourth quarter. A key focus will likely be the online ad business and its momentum in the mobile market, where the company’s Android operating system remains dominant.
Cantor Fitzgerald analyst Youssef Squali reaffirmed his buy rating on Google, saying he expects in-line results, “capping what has been a successful year for both search and display advertising for the company.”
Some analysts have cited concerns about the impact of the economic crisis, particularly in Europe, as well as the steady shift to mobile that is seen causing a decline in average cost-per-clicks, which are the prices paid for Google’s online ads.
Last week, Nomura’s Nowak argued that “while the near-term results may be ‘noisy,’ Google shares were still worthy of a buy rating, as he raised his price target to $860 from $840.
“We continue to believe the company’s long-term position to take share within the ad markets and drive the overall desktop and mobile online ad markets is intact,” Nowak wrote.