Google's Q4 earnings: Signs of an arms race ahead?

Google's Q4 earnings: Signs of an arms race ahead?

Summary: Google's fourth quarter and 2012 capital expenses may indicate an infrastructure arms race between it and Facebook, not to mention Amazon and others.

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Google's fourth quarter earnings will be closely examined due to discontinued businesses, Motorola restructuring, cost per click figures and signs of the economy's health. Perhaps the focus should go to the capital expense line.

The search giant is expected to report fourth quarter earnings of $10.52 a share on revenue of $12.36 billion. However, Google indicated last week that Wall Street figures may not account for Motorola Home as a discontinued business. That unit was sold to Arris in the quarter. Translation: Wall Street estimates are too high.

Simply put, Google's typically strong fourth quarter will be muddled by Motorola's expenses and so-so revenue. Also: Google's Motorola purchase: Was it worth it?

A research note from Pivotal Research highlights a few other issues. According to Pivotal analyst Brian Wieser, Google's capital expenses may indicate an infrastructure arms race between it and Facebook, not to mention Amazon and others.

Wieser noted:

  1. Google is reportedly developing real estate in London for about $2 billion.
  2. The company is doubling its investment in a South Carolina data center to $1.2 billion.

Wieser added:

In part these capital deployments reflect what the company must view as optimal uses of cash (especially when it cannot be tax-efficiently repatriated). But this news also highlights the substantial scale of expense associated with managing a business of Google’s scale. At the same time, it highlights the scale to which any competitor must climb in order to outperform Google in key areas including search and online video, two areas where Google’s control of its own facilities and depth of investment will allow the company to maintain a substantial advantage over any other company’s efforts to develop better products and better customer experience.

Meanwhile, Facebook is expected to follow the same strategy: Invest heavily. Google may never compete with Facebook on social networking and Facebook may never battle in search. But rest assured the two parties will spend like they will. Wieser estimates Google will spend $3.2 billion on capital expenditures in 2012, $4 billion in 2013 up to $5.6 billion by 2017 on property and equipment.

Here's a look at Google's third quarter capital expenses. 

googpreview012213

Topics: Data Centers, Google, Servers, Tech Industry

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26 comments
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  • google

    and Amazon have successfully found a way to monetize their user base. Facebook is still struggling with a way to do that. If it comes down to an arms race, Facebook may come up short.
    krossbow
    • "...Facebook may come up short."

      "...Facebook may come up short."

      One can only hope. Alas, the Zuckerberg "mind"-set ("Move fast and break things", and, of course, his notorious opinion that his users are "dumb f_cks") seems to have found a place among the many millions who welcome the social interconnectivity it provides at the cost of their privacy.

      ...er, assuming they're even aware they're being exploited, and I suspect most aren't, or they don't care.
      slingzenarrowzuvowtrayjissforchin
    • Google has, Amazon is still trying.

      Amazon has a PE over 3000 and is still looking for a strategy for successful monetization.
      Bruizer
  • Google and Amazon

    have successfully found a way to monetize their user base. Facebook is still struggling with a way to do that. If it comes down to an arms race, Facebook may come up short.

    The other competitor not mentioned is MS. Google has essentially signaled its intent to go to war with MS. Google is pushing hard to capture the device market with Android and Chrome OS. Google has also announced that it is going after the 90% of Office users who don't need a full featured office suite. Both companies have deep pockets, and will spend as needed to win.
    krossbow
    • it could be easier than most think

      ... to go after MS Office users. if MS is forcing the SaaS approach for future software releases of Office360, Google can steal all the customers that refuse to continue paying for a service rather than paying for it once. And even the paid Google Apps service would be cheaper than Office360 if you needed more than just the free stuff.
      ukjb
      • The problem is Googles offeringes are far short on features

        and the UI is well cartoonish. So while they may go after the users, the problem they have it they do not have the same features and that is where MS is up on them. The pundits for Google seem to forget the enterprise - I use office at work, I will use it at home. My kids schools have all used office - University level down to the K-12. So to switch all of the knowledge, materials and work to Google and loose 90%+ of the features - is a huge loss.
        ScanBack
        • Short on features?

          I would agree with you, that some features in Microsoft Office are not present in Google Docs. But, what many miss is that unlike other free office apps, the Google Docs also offer benefits beyond what Microsoft offers, so it's not just a one way comparison.

          I use both Microsoft Office and Google Docs every day. I prefer to use Google Docs if there is any sort of collaboration, or even just sharing required as it is built into the system, as is very easy to do, unlike with Microsoft. Emailing documents back and forth is a pain, that no one should have to live with, but is still widely done.

          Also, if there is anything to do with the stock market and pricing, the functions built into Google Spreadsheets make it far easier to use than Excel.

          In terms of the UI, I think you're way off base. There's a reason that courses on Powerpoint, Excel and Word are necessary.... Microsoft has made a total mess of the UI, and if anything it keeps getting worse in successive generations of these products.

          Finally, I think you mean "lose" not "loose".
          REBERY
          • Deteriorating User Interface

            @REBERY : I concur wholeheartedly. When the "ribbon" first appeared, I spent a fair amount of time to configure MS Office apps to get rid of the damned thing, which just took up screen space and made things harder to use. Now that I'm no longer forced to use Office, I much prefer the OpenOffice UI.
            S_Deemer
        • .

          That's the point though... for 90% of what people do, Microsoft is overkill... there's an old saying... something about a mosquito and a cannon... i'm sure you're familiar with it. Google Docs does enough for what most people want/need. And it's not like they are done working on it. It adds new features every month.
          ukjb
        • MS is about to lose...

          MS is about to lose a big part of its Office market. Here is why.
          Just like iPad is replacing the PC, the Google Docs will be replacing MS Office.

          When the iPad (and other tablets) came along, many people realized that it is good enough for their needs (browsing, email, etc.). Similarly, most people do not use the advanced features of MS Office. Google Docs can import/export MS format documents and for most people, the features of Google Docs are quite enough...
          prof123
          • LOL! Wishful thinking, and real world are 2 different things

            You've used that line for years (MS is about to lose a big part of its Office market), and it hasn't happened yet.

            I still have people asking me for MS Office for home. Doersn't sound like MS is losing anything
            William Farrel
          • just wait until

            ... until the SaaS kicks in full gear and people start to realize they have to pay for it on a monthly basis as opposed to a one time fee like it used to be... MS Office will decline faster than you think
            ukjb
          • @ ukjaybrat

            At the three or four different levels of users - consumer, smb, enterprise - only 5 million smb/consumer users have so far moved to google apps software and they did sacrifice feature breadth and depth for price and availability (online as opposed to on-premises). But the SAAS movement has come full circle and Salesforce, Workday etc no longer have fully new tech business models. Witness the peak valuation of these companies. SAAS is a mature business now or will be in a year or two.

            And Wall Street expects mature businesses to start to pay off in terms of FCF (cash flow). So Google Apps will no longer be free or cannot be free. Otherwise Google will be penalized for their market penetration. Witness the removal of free versions of Google Apps except for student/education versions. The problem is not so much as the new launch offerings of Microsoft in terms of Office365 subscription product. The problem is the sudden maturity of the SAAS business which is unexpected for most of the involved companies.

            PeopleSoft HR will slowly be replaced by Workday. And SAP CRM can be replaced by Salesforce. Expect MS Office in all penetrated sectors to be replaced by Office365 due to incumbency. The Enterprise/SMB sectors look to be won by Office365 handily. But I expect the consumer segment to be evenly divided between Google Apps and Office365. But it looks as if the education sector will go with Office365 too since school districts have multiyear annuity agreements with MSFT. And if Google Apps starts charging for what was free, then there is no difference between the two SAAS software.

            I think Google Apps must remain free and probably become even a margin loss product for Google to maintain mindshare against Office365. Otherwise, Google will not survive the education/student/consumer industry segment. Being free is the only reason to use Google software.
            calahan
    • Catch-up

      "Google has essentially signaled its intent to go to war with MS."

      They've been at war with M$ for a decade, and so has Apple -- indeed it was an alliance.
      Tim Acheson
    • MS not mentioned..

      ...not by name but the author did write "Google, Facebook, Amazon and others"
      'Others' being a category that MS seems to be in a rush to join of late......
      The Central Scrutinizer
  • Bottom line: Google's latest figures are bad

    Q4 is a disappointment for Google and its investors.

    Spin it or explain it any way you like.
    Tim Acheson
  • What is 'bad'?

    Don't confuse Google as a stock market investment and Google as a major player in the industry.

    Stock market gurus love to guess - and gamble - and look for short term gains. This time, Google seems to be hinting they've over-reached.

    Who cares? The stock market has no memory, and little interest beyond the next three month's figures. Lower profits says little about Google, probably more about the state of the economy.

    And as we all know, Google is in great health. Spin THAT anyway you like :o)
    Heenan73
  • Short in features (GDocs)?

    I also use GDocs, though probably nowhere near as much as REBERY. I agree with him about the ease of sharing v e-mailing docs and I started being accepting of the far more primitive Docs v Word (being midful of the fact that GDocs are being continually improved) because of the ease of sharing and collaborating. But MS still offers a lot more, not forgetting Access.

    Nevertheless, MS does have a cloud solution, namely SkyDrive. I have looked at it and I can see that if one is happy to be tied to having MS Office on everyone's desktop, then that is a way to go. No reason in theory why that cannot be ramped up and made less dependent of having MS Office, but then a source of revenue would be undermined...

    Google, of course, does not depend on its online office suite for revenues.

    At the end of the day (on a 10-year horizon at least), there is still a large market for local software because in much of the world you do not have a reliable, fast internet connection. I certainly would not give up MS Office or WordPerfect! I think there is plenty of room for both local and online software.
    DAS01
  • The Arms-Race isn't with Facebook

    Google's rolled out mobile, tablet, and now Chromebook hardware, so that it effectively competes with both Microsoft & Apple, although for a different user base & price points. That's where I see them competing the most heavily in the near future, not with Amazon or Facebook.

    For Amazon, Google would have to get into general retail sales (which it's not), or heavy-duty cloud hosting (which they're not pushing to my knowledge).

    For Facebook, as the Pundits have pointed out, Google could have steamrolled over them with Google+ but didn't, and since they're not pushing + I'm going to guess that they're not going to war there, either, at least not yet.

    Looks to me like hardware & operating systems are the current trend, and that pits them against Microsoft & Apple.

    Tim
    http://www.ismautomation.com
    timventura
    • Google is failing with Google+

      I have seen TV add after TV add for G+ and it is still a ghost town. Google has tried to steamroll FB but has failed miserably.
      Bruizer