Google (GOOG) Earnings Preview Q4 2013: Earnings Expected To Increase Thanks To Climbing Ad Revenue

Google (NASDAQ:GOOG), the Internet search leader, is expected to report an 15.8 percent increase in earnings per share for the fourth quarter of 2013 as a result of increased advertising revenue thanks in part to growing mobile ad sales and YouTube revenue. The California-based corporation will report fourth-quarter earnings on Thursday, Jan. 30, after markets close.

Analysts polled by Thomson Reuters Eikon expect Google to report fiscal year 2013 fourth-quarter earnings per share of $12.26 on revenue of $16.75 billion, compared with an EPS of $10.59 per share on revenue of $12.16 billion in the year-ago period. Wall Street consensus forecasts a 37.7 percent increase in revenue.

Update: Google has posted Q4 earnings, read the results here.

Net income is expected to increase to $4.16 billion, up from $3.55 billion in the fourth quarter of 2012. Despite the 17.2 percent increase in net income, Google is only expected to post a 24.8 percent profit margin in the fourth quarter of last year, down from 29.2 percent one year ago, as the search giant continues to struggle with declining PC ad sales amidst a shift to mobile platforms.

“The rapid pace of evolution in the Internet and Technology sectors, including the emergence of new competition and new form factors of hardware devices, could cause a shift in user behavior that diverts traffic away from Google,” UBS analyst Eric Sheridan said in a research note.

Sheridan identified additional key risks including regulatory scrutiny over “anti-competitive practices, intellectual property claims, a failure to effectively integrate and manage the Motorola acquisition, macroeconomic impacts on global advertising budgets” as well as a pending share split as possible factors that could bring down Google's stock.

Google has beat Wall Street estimates in three of the past four quarters. Adwords Enhanced Campaigns, a series of changes to the company’s advertising policy, has resulted in higher click volumes that has offset concerns over lower costs-per-click, which drains ad revenue for the search giant. Google’s chief business officer Nikesha Arora said last quarter that increasing mobile traffic through Enhanced Campaigns was “the first step we've taken toward multi-screen and multi-device advertising.”

In Q3, Google posted better than expected results as Enhanced Campaigns led to a 26 percent increase of paid clicks, offsetting an 8 percent decrease in cost-per-click. Google beat Wall Street estimates for its fiscal third quarter with profit of $2.97 billion for the quarter ending Sept. 30, up 36 percent from $2.18 billion for the year-earlier period.

“Google is well positioned to benefit from the migration of brand advertising dollars online,” Wells Fargo analyst Peter Stabler said in a research note. Google transitioned the Shopping feature of its search website into a series of product listing ads (PLAs) in October, 2012. "We view the increasing ratio of PLAs to text ads as a positive, and incremental to Google’s advertising revenues on a replacement basis due to higher click/conversion dynamics.”

Starting Thursday at 4:30 p.m. EST (1:30 PST) Google will also provide a live webcast of a conference to discuss its earnings report on YouTube.

Motorola Mobility has posted operational losses since it was acquired by Google in 2012. Google also owns YouTube and develops the Android mobile operating system, as well as the Nexus series of tablets and phones featuring the OS. Google began selling the Chromecast streaming device in the third quarter of 2013, a device that has topped Amazon.com's Electronics category as the best-selling device since shortly after its release.