How much will Google benefit from cost cuts?

When Google reports financial results Thursday, the company could give some indication about how much it's saving through cost-cutting measures.

Google will report financial results Thursday for the last quarter of 2008, but the crystal-ball set likely will be watching for indications of how much Google's belt-tightening efforts will help the search and advertising giant's future profits.

It's not clear exactly how deeply Google is affected by the recession. The company has been bullish about how its search-ad business is better able to withstand a down economy because advertisers can find out just how well a campaign is faring financially and because cost-conscious buyers might use Google's services more. But the economic malaise has proven a lot stronger than in recent months, and Google's optimistic pronouncements have largely been replaced by more cautionary statements. Research firm eMarketer last month lopped $1.3 billion off its 2008 online advertising measurements for 2008 after the market slowed significantly.

More pointedly, they've also been supplemented by contractor cuts, layoffs--including 100 recruiters this month --and the closure of many projects that didn't pass muster in what's clearly a broad assessment of what to keep and what to drop. Google may be an unusual company, but it's not immune to the mundane forces of capitalism, and the company is clearly undergoing an attitude adjustment .

Google's still going to be profitable--this is no General Motors tale. For the fourth quarter, analysts surveyed by Thomson Reuters expect an average of $4.95 per share in net income, with revenue of $4.12 billion excluding commissions called traffic acquisition costs, or TAC. That's almost flat from Google's third quarter , when the company had revenue of $4.04 billion after TAC, but still a step up from $3.39 billion in the fourth quarter of 2007.

eMarketer pruned its 2008 online ad measurements by $1.3 billion when the economy slowed.

But what's still not clear is how much we should be reading into Google's results when it comes to the broader economy. There's no doubt things look bleak, yet some tech bellwethers-- Apple and IBM for example--didn't feel as much pain as had been expected.

And Google probably isn't the best canary in the coal mine. Yahoo, with its mainstream advertiser base, started feeling the economic pressures earlier. Google's results are probably a better predictor of, well, Google's future results. The company relies mightily on search ads, a market it dominates. Most other big players, Yahoo included, are chiefly involved with display ads.

 

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