Google earnings: What to watch

SAN FRANCISCO — Google reports fourth-quarter financial results after the close of trading Thursday.

The Internet giant is expected to post profits of $7.08 a share on sales of $14.61 billion.

Google rules the most lucrative business on the Internet: search advertising. But fears of slowing growth have weighed down Google shares, which have fallen nearly 9% in the past year to $512.43 as of Wednesday’s close.

Analysts at Stifel Financial and Atlantic Equities recently dropped their “buy” ratings on Google.

Still, many analysts are bullish on the stock at current levels.

“Google and its stock have become particularly controversial among investors. This is due to the juxtaposition of its attractive long-term potential and a few real but very near-term challenges,” Sanford C. Bernstein analyst Carlos Kirjner wrote in a research report. “But the fundamental opportunity continues to be attractive and vastly underappreciated.”

In a research report, BGC Partners analyst Colin Gillis called Google “one of the most attractive investment opportunities in our coverage.”

Pivotal Research analyst Brian Wieser says the negative views held by many investors “make Google attractive at current price levels.”

RBC Capital Markets analyst Mark Mahaney says Google remains one of the tech stocks best positioned to take advantage of prevailing trends such as the shift to mobile, the migration of television advertising budgets online, wearable devices, Internet-connected cars and devices.

By investing in search, video and display advertising and in new businesses such as Google Play, cloud computing and others, “strategically AND shareholderly, Google is pursuing the right strategy,” Mahaney wrote in a research report.

Here’s what to watch:

Revenue growth: The growth of Google’s search advertising business has continued to slow. The Internet giant has other fast-growing businesses such as YouTube but they are much smaller than search and they have lower margins.

Cost-per-click: Consumers are shifting to smartphones where search is less lucrative, putting pressure on Google. The average cost paid by advertisers — called cost per click — was under siege because clicks on ads on mobile devices cost less, but is now stabilizing. One caveat, the total number of paid clicks has been declining.

Spending: It’s not just that revenue growth is slowing, expenses are rising. Operating profit margin fell to 23% in the third quarter when Google added nearly 3,000 employees. Google is also investing in real estate and data centers, ramping up capital expenditures.

Rising dollar: Analysts are wondering how much the rising dollar will hurt Google, which gets more than half of its revenue overseas. Some like Gillis are not that concerned. He says Google has one of the better “currency hedging” strategies and the U.S. holiday season will offset the “the negative impact from currency.”

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