Google Earnings: Indicator or One-Off

Google’s earnings in Q4 and in all of 2009 were strong, but that might be more a case of Google’s strengths than the online space as a whole. Here’s why.

Of all the numbers Google released yesterday in its earnings statement, let’s start with this: 6%. That figure represents the company’s 2009 US net advertising revenue growth, only 1.3% higher than the estimate eMarketer used to help create the online ad forecasts we released in December — nothing to change our perspective on 2009.

However, even though Google’s earnings were a bit higher than our internal estimate, until the new Yahoo! numbers come out next week, the picture of search ad spending in particular will remain incomplete. In fact, our 2.2% projection for search spending growth in 2009 likely means Google’s gains will be somewhat offset by Yahoo!’s continued search revenue losses.

Yesterday’s most important number, perhaps, was Google’s Q4 US net ad revenue gain of 11%, a sharp uptick over 2008. After single-digit growth rates in the first three quarters of 2009, an 11% gain potentially indicates a recovering economy.

As one of the Google executives noted during the earnings call, “Within the US the impact of the economic recovery is beginning to show particularly in sectors with a strong ROI focus.” This points to a large share of search spending coming from retailers, as the US consumer starts to loosen the purse strings a bit more.

In that light, eMarketer’s current projection for 5.5% growth for total US online ad spending in 2010 might be on the mild side. However, just as with our comment about the search market and Yahoo!, more data will be needed before we know whether Google’s results are a prime indicator of economic recovery or more simply an indicator of how Google is just getting stronger every year.