Google spent heavily on information technology in the fourth quarter and sees "significant capital expenditures" ahead in 2007.
At least Google can afford it. Fourth quarter results handily topped estimates.
The company reported fourth quarter earnings of $1.03 billion, or $3.29 a share, on revenue of $3.21 billion. Excluding one-time items, Google had earnings of $3.18 a share. Deducting traffic acquisition costs of $976 million the sales tally is in line with estimates, which aren't precise in the first place since Google doesn't do quarterly projections.
According to Thomson Financial, analysts were expecting Google to report a fourth quarter profit of $2.92 a share on revenue of $2.2 billion. For 2006, analysts were expecting a profit of $10.33 a share on revenue of $7.26 billion.
The revenue breakdown: Google sites fourth quarter revenue totaled $1.98 billion, or 62 percent of sales. Partners sites, the ones that use the AdSense programs, brought in $1.2 billion in revenue. That's a 50 percent increase. International revenue in the fourth quarter represented 44 percent of sales.
Google is paying more to its AdSense partners. Traffic acquisition costs were $916 million in the fourth quarter, up from $825 million in the third quarter.
Data center and credit card processing costs are up. Google said costs of revenue, which represents data center and credit card processing expenses, were $307 million, or 10 percent of sales. Third quarter expenses were $223 million, or 8 percent of sales.
Google is spending big on IT. "In the fourth quarter of 2006, capital expenditures were $367 million, the majority of which was related to IT infrastructure investments, including data centers, servers, and networking equipment," said the company.
More than half of Google's expenses are payroll and facilities. Google's spending on payroll and facilities are taking a toll. Operating expenses were $862 million in the fourth quarter. These included $493 million in payroll and facilities costs. The company didn't provide a year ago figure for comparison.
The cash pile grew. Google's cash, cash equivalents and marketable securities were $11.24 billion.
Research and development spending is up. Google's fourth quarter R&D spending was $1.28 billion, up from $777 million a year ago. For the year, Google's R&D spending was $4.2 billion, up from $2.57 billion the year before.