Odds On: Even If Google Leaves China, Expect AdSense Et Al To Stay

Google/China

Google Advertising could remain in China even if google.cn exits. Piper Jaffray Senior Research Analyst Gene Munster puts the odds of google.cn packing up and going home at 70%. While he expects the search engine to shut down, Google could continue operating some advertising products in China, such as AdSense, which accounts for the majority of the search engine's revenue in China, he wrote in a research note.

Munster isn't far off base. It's almost certain that Google.cn will fold operations in China, but it's not completely clear whether Google advertising, research and development, and engineering will remain in the country, according to a source in the know. The decision remains in flux.

While the Mountain View, Calif. company has yet to begin talks with the Chinese government, sources tell MediaPost that Google refuses to compromise company ethics by continuing to censor searches, which it must do to operate in the country under Chinese law.

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One thing is for sure -- the majority of ad revenue from China comes from companies advertising on google.com. The bulk of Google's financial gain in China isn't from AdWords revenue on google.cn.

A post dated January 2006 by Andrew McLaughlin, Google senior policy counsel, introduced Google's foray into China as google.cn. "Filtering our search results clearly compromises our mission," he wrote. "Failing to offer Google search at all to a fifth of the world's population, however, does so far more severely."

Four years later, little progress has been made. If the company isn't able to operate uncensored, this means it's time for Google search to pack up and go.

And while Google's decision to reconsider its position in China resulting from December's cyber attacks on its network has the world buzzing, don't expect the historic event to affect positive financial earnings when the company reports fourth-quarter results Thursday.

The final month of third-party paid-click data released Wednesday suggests that Google's fourth-quarter U.S. paid clicks rose 16% sequentially, according to Munster. The analyst has modeled the U.S. paid clicks at 4% quarter-on-quarter. Third-party data suggests that Google will post earnings ahead of the Wall Street expectations at $6.45 on $4.9 billion. He says if estimates are accurate, Google could earn $6.57 on $5.01 billion.

Similarly, Broadpoint AmTech Analyst Ben Schachter expects a strong quarter on both the top- and bottom-lines, driven primarily by macro improvements, meaningful monetization improvements, currency, and a lag in new hiring and investment. Schachter has increased the fourth-quarter net revenue sequential growth estimate to 14% -- up from 12% -- and the EPS estimate to $6.92.

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