Google's Earnings Hint at Improving Economy


Google's (NASDAQ:GOOG) third-quarter earnings blew Wall Street out of the water late Thursday, offering a bright spot in a troubled economy.

The tech behemoth's advertising figures are key to investors looking to get a pulse on the bustling tech sector and overall economy, particularly amid ongoing financial uncertainty that some feared had companies acting defensively and minimizing costs.

Google reported its revenue climb a whopping 33% during the period to $9.72 billion, widely trumping average analyst estimates polled by Thomson Reuters of $7.22 billion. Paid clicks, which include clicks to ads served on Google sites and its AdSense partners, were up 28% year-over-year, while the average cost-per-click climbed 5%.

The figures offer a promising start to a slew of tech earnings slated to follow Google, that may show companies have continued to advertise, as well as pay higher fees for advertising, despite the sluggish economy.

Of course, advertising may have gotten a boost this quarter from retailer's back-to-school campaigns. Many analysts warn that online advertising revenue is typically one of the last ad formats to be impacted in a slowdown.

However, Google's results are followed closely not only because the company is a leader in the tech industry, with a market capitalization of $180 billion, but also because it too saw its stock dip in 2008 amid the financial crisis, proving it is not immune to recessionary pressure.

Also with today's earnings, analysts are watching the impact on Google’s profit margins and costs as it continues to await regulatory approval of its $12.5 billion purchase of Motorola Mobility - the tech behemoth’s largest-ever buy, and first transition into the hardware sector.

Google’s mid-August purchase of Motorola Mobility is not expected to close for at least a few months. However, analysts had predicted Google’s 2012 operating margins would be lower due to costs related to its acquisition and integration.

The company reported on Thursday a 50% increase in operating expenses to $3.28 billion from $2.19 billion in the year-earlier period. Those expenses, which include acquisition costs, comprised 34% of revenues, up from just 30% last year.

It still remains to be seen how Google will handle its dip into the hardware sector. But while the deal is expensive, the additional patents from Motorola -- all 17,000 of them -- and intellectual property, could put it on a whole new playing field that may have it competing more directly with Apple (NASDAQ:AAPL), analysts have said.

The devices would not only compete with Apple’s iPhone and iPad, but the additional resources would help boost its Apple-rivaling Android software, which powers more than 150 million devices around the world.