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