Coming Shortly: Economic Acid Test for Google and Search Advertising

Now that Microsoft has an early answer to its fourth-quarter earnings—bad—tech investors turn their attention to the other behemoth that will report its earnings today: Google.

Thanks to a flurry of varying reports on how search advertising is doing—pretty darn good to kinda bad depending on who’s doing the measuring—Google’s performance is particularly murky. Wall Street is expecting fourth-quarter profits of $4.96 billion, which would be up 12% from $4.43 a share a year ago. Net sales, after subtracting payments to partner Web sites for traffic—the preferred metric for analysts—are expected to be $4.12 billion, which would be up 21%.

Google itself doesn’t provide earnings guidance, but there are plenty of other signs that it has been hit by the economy. It has cut more than a half-dozen projects in recent weeks—most recently its Print Ads program this week—laid off 100 recruiters, and may cut some engineers as part of office closings.

Indeed, that’s one reason why, in the last couple of weeks, many analysts who had reduced their estimates slightly thanks to a number of signs of a slowdown in search advertising have started sounding a bit more optimistic. They reckon that Google’s cost-cutting will help bolster profits, even if its revenue growth seems certain to skid.

But more important than the fourth quarter—which not only included the realization that the economy’s not going to improve for a good long while but also included the holiday season when ad spending often rises—will be Google’s outlook for this year. There’s little doubt that that economy is indeed affecting even search advertising, so comments from Google’s executives will be closely watched.

Check back for a new post on this blog after about 1 p.m. Pacific, when Google’s earnings release goes out, for a quick take on the quarter. I also expect to liveblog the highlights of the earnings call.

Before it's here, it's on the Bloomberg Terminal.