January 20, 2009

SAN FRANCISCO - Internet search leader Google Inc. is scheduled to report its fourth-quarter results after the stock market closes Thursday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Google ended 2008 with the most sobering quarter in its 10-year history, and there's little reason to believe the upcoming report will bring much joy to the once high-flying company.

Mountain View, Calif.-based Google sailed through the first half of last year, but has been feeling the economic pain in recent months as more advertisers curtail their spending amid the recession. Furthermore, consumers have scaled back their online shopping — a disturbing trend for Google because clicking on ads accounts for most of the company's revenue.

In a sign management expects its revenue to remain relatively flat or perhaps even erode for the first time in Google's history, the company has been cutting costs. Google already has acknowledged jettisoning a significant number of its 10,000 contractors, although it has declined to say how many. In the past week, the company also disclosed it laid off 100 of its own workers.

The purge represents just a sliver of a payroll spanning 20,100 employees, but it marks a milestone in the company's maturation. Management had never previously dumped workers except to eliminate overlapping positions following an acquisition.

Google suffered another setback in November when federal regulators spoiled its plans to sell ads for rival Yahoo Inc. Faced with the threat of a U.S. Justice Department lawsuit that would have raised monopoly allegations, Google backed out of the Yahoo alliance.

Google's earnings could be hurt by a possible accounting charge to reflect the diminished value of the company's $500 million investment in Clearwire Corp., which operates wireless broadband networks. Intel Corp. and Time Warner Inc., which invested in Clearwire at the same time Google did last year, already have recorded charges for their losses on Clearwire.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters expect Google to earn $4.96 per share on revenue of $4.12 billion. The estimates exclude Google's expenses for employee stock compensation, unusual charges and the revenue that the company pays to its advertising partners.

ANALYST TAKE: Since Google refuses to make revenue projections even in flush times, analysts are hoping management will at least provide some insights about the expense side of the equation. "The bottom line is that we believe Google will cut costs, possibly significantly, in 2009," UBS analyst Benjamin Schachter wrote in a recent report.

WHAT'S AHEAD: Google's expansion into mobile phones is expected to continue as more handsets are introduced with the company's Android software. The efforts to reap more advertising revenue from its YouTube subsidiary, the Web's top video site, also will remain a focal point.

But Google seems less likely to roll out experimental products and dabble in other areas outside online advertising until the economy rebounds.