Tech Earnings: The Highs and the Lows

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Bullish on Google

Analysts also expect Internet companies that depend on advertising to post solid fourth-quarter earnings. Indeed, the Web ad market is expected to hit $18.3 billion this year and grow to a healthy $25.2 billion business by 2010, reckons research firm eMarketer.

The higher-than-expected online advertising revenues should benefit the search and advertising giant Google. Analysts expect that Google (GOOG) will not disappoint when it reports earnings on Jan. 31. The Street conservatively predicts Google will report that revenues rose 17% to 20% over the previous quarter, when it reported sales of $2.7 billion. "We are pretty bullish on Google," says Piper Jaffray (PGC) senior analyst Safa Rashtchy, who is predicting a 20% sales increase.

Most of that growth, Rashtchy says, will stem from computer users performing more searches, thus enabling Google to serve more ads for those same users to click on. He also expects the company to benefit from a slight increase in rates it charges for pay-per-click advertisements. The average click price may have risen from about 45 cents to as much as 60 cents, says Rashtchy.

Looking ahead, analysts are optimistic about Google's ability to bring in additional revenue from some of its recent ventures like selling excess ad space on radio stations and in print publications and its October acquisition of video-sharing service YouTube (see BusinessWeek.com, 1/30/06, "Google: Searching for an Edge in Ads"). "I think it is early days for radio, print, and even YouTube," says Wolk. "But they all showed tremendous promise, and it is certainly an element in our growth projections," says Marianne Wolk, a senior Internet analyst at Susquehanna Financial Group.

Analysts expect that Yahoo! (YHOO), which reports on Jan. 23, will also have a solid quarter, given that the company set the bar low. During the company's third-quarter call, Yahoo lowered expectations for its fourth quarter from about $1.27 billion to roughly $1.15 billion. It blamed the miss on decreased spending from a few major advertisers. Many analysts, however, maintained that Yahoo's inability to provide highly targeted search ads, due to delays with its Panama advertising platform, was causing the company to suffer. Others said that competition for lower-cost advertising inventory was hurting Yahoo (see BusinessWeek.com, 9/21/06, "Yahoo's Ad Slump").

Wolk predicts Yahoo will see 20% year-over-year growth in branded advertising and 5% growth in search. Most analysts are not expecting Yahoo's search advertising revenue to grow impressively until Panama, the company's new targeted advertising platform, is fully launched and has had several months to operate. Yahoo executives have repeatedly said that Panama will fully launch in the first quarter of 2007. "If Panama is launched by February, we should have a notable increase [in revenue] by Q2/07," says Rashtchy.

Hesseldahl is a reporter for BusinessWeek.com. Holahan is a writer for BusinessWeek.com in New York.
With Steve Hamm in New York.