Google Revs Sales and Cost Engine

NEW YORK ( TheStreet) -- Google ( GOOG) is expected to have seen strong holiday search traffic and report robust ad sales after the bell today. But it's the rising expenses that Wall Street will be focused on in Google's fourth-quarter financials.

Google's hiring and expansion efforts have been pushing costs higher and at a quicker pace than revenue growth. For example, operating expenses grew 35% over year-ago levels in the third quarter while the top line only increased 24% in the same period.

Investors will gladly applaud Google's big sales numbers, especially if they exceed the $6.06 billion target analysts are expecting.

And if Google eased off a bit on spending -- bringing expense growth comfortably below the 35% level -- Wall Street will have reason to cheer. Google's earnings are expected to be $8.09 a share.

And while Android, YouTube and Google's display-ad businesses will have a cameo role in today's earnings drama, margins will be on center stage.

ThinkEquity's Aaron Kessler predicts that Google's EBITDA or profit margin will be 61.2% in the fourth quarter, which would be 1.6 percentage points better than the third quarter, but 1.8 points worse than the year ago level.

Bears will be looking for a profit margin below 60%, anything significantly higher will be bullish for Google stock.

--Written by Scott Moritz in New York.

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