Google Meets Unexpected Foe: Reality

Updated from 8:46 a.m. EST

Google (GOOG Quote) may have pulled the lever hard enough to save the fourth quarter, but if the economy doesn't improve in the months ahead, a new fix is going to be required to keep the growth engine running.

All eyes turn to Google on Thursday when it reports fourth-quarter earnings after the market's close. Though skittish investors have driven the stock down 25% since the beginning of the quarter -- they were trading around $300 Thursday afternoon -- analysts seem confident that the Internet query giant was able to perform better than some observers had feared.

Google is expected to show it was able to offset areas of weakness largely by increasing its number of ad placements and gaining share in the search market in the process.

Analysts expect Google to post earnings of $4.96 a share, excluding one-time charges and gains, on $4.12 billion in sales for the fourth quarter that ended in December. For the current quarter, Wall Street has forecast nearly flat results, with a pro forma profit of $4.98 a share on revenue of $4.12 billion.

Fans like Google's dominance in the search ad business, where its lead has only widened over rivals like Yahoo! (YHOO Quote) and Microsoft (MSFT Quote). But bears see a painful adjustment still coming.

"It's a pretty simple thesis," says one money manager who didn't want his name used but who is short Google. "Ad trends are worsening, and the Street's numbers are too high."

While it is tough out there, some continue to see Google as a pretty solid player. "Google is not immune to gale-force macro headwinds. It should, however, be one of the more resilient companies," AmTech analyst Rob Sanderson wrote in a research note Wednesday.

Sanderson rates Google a buy over the long term and says the chance is limited for a significant downturn in 2009.