Google's Third Quarter to Show Good Times Are Back

Analysts expect 2010 Q3 earnings of $6.69 a share on revenue of $5.27 billion.

In 2009, Google reported earnings of $5.13 a share on revenue of $4.39 billion.

Internet search leader Google is scheduled to report its third-quarter earnings Thursday after the stock market closes.

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What to Watch for:

Unlike many other companies still nervous about the jittery economy, Google has been spending like the good times are rolling again — and that has turned off some investors who would prefer the company hew to a more frugal approach that would drive its short-term earnings even higher.

But Google executives have left little doubt that they believe the company will be better off in the long run if it hires more smart engineers and invests in more computers to provide an ever-expanding array of online services.

Google, based in Mountain View, Calif., also still funds ambitious experiments that have nothing do with Internet search. One example: Google's recent tests of cars controlled by robotic technology instead of drivers, even though it could be years before the research yields a product.

The loosening purse strings will focus a lot of attention on how many more workers Google hired in the summer and how much the company funneled to capital expenditures, the accounting category covering the company's spending on data centers and other long-term projects.

Google added nearly 2,000 workers during the first half of this year, contrasting with a reduction of 436 employees during the same 2009 period. Google's capital expenditures totaled $715 million through the first half of the year, a 78 percent increase from the same time last year.

Analysts are hoping to learn more about how some of Google's past investments are faring.

YouTube, the video site that Google bought for $1.76 billion four years ago, is of particular interest. Google CEO Eric Schmidt recently said YouTube is selling ads alongside about 2 billion video per week, causing analysts to believe the video site may finally be on the verge of making money. YouTube and an even larger acquisition, the $3.2 billion purchase of the online ad service DoubleClick, have been helping Google to reduce 7its dependence on short text ads and expand its distribution of more compelling commercial messages that feature imagery.

Google also may use its third-quarter earnings call to provide an update on the success of its Android software for mobile phones. The company previously has said that more than 200,000 Android devices are being activated per day.

Although Google is making inroads in other fields, Internet search remains its financial lifeblood. That part of the business is still thriving, although analysts suspect the company's year-over-year revenue growth may have fallen slightly from the second quarter's 24 percent gain.

Microsoft and Yahoo are hoping they can trip up Google with an Internet search partnership that finally took effect in the U.S. in August, so analysts will probably be asking questions about how that alliance seems to be affecting the competitive landscape so far.

Google countered its rivals' threat in early September by introducing an "instant" feature that begins displaying search results as soon as people start to type the requests. Early research has indicated that the change is bringing in more ad revenue as Web surfers are able to do searches more quickly and big companies increase their spending to ensure their links stand out.

Why it Matters:

Google provides a window into the growth of the Internet economy because its search engine and online advertising network are the Web's biggest moneymaking vehicle.

What's Expected:

Analysts polled by Thomson Reuters expect earnings of $6.69 per share , excluding expenses for employee stock compensation, on revenue of $5.27 billion, after subtracting Google's ad commissions.

Last Year's Quarter:

In the third quarter of 2009, Google earned $1.64 billion, or $5.13 per share, on revenue of $5.94 billion. Revenue after subtracting Google's ad commissions was $4.39 billion.