Google's advertising efforts on social networking sites like MySpace and its own Orkut platform are "not monetizing as well as expected," CFO George Reyes said and other executives concurred during the company's quarterly earnings call.
"We have a huge amount of social networking inventory," explained Larry Page, Google co-founder. "It varies quite a bit how well we monetize, based on a number of factors, some of which we understand, some of which we don't."
Despite that bit of discouraging news, Google's results were strong overall. Net income for Q4, the three-month period ended Dec. 31, 2007, rose 12 percent year over year to $1.21 billion on a 51 percent increase in revenues. Total revenue totaled $4.23 billion, a gross figure that does not take into account traffic acquisition costs (TAC).
Revenue from Google's own sites was $3.12 billion, or 65 percent of all revenue, while revenue from partner sites -- including AOL and Ask.com -- was $1.64 billion, or 34 percent. Google's revenue from AdSense grew 37 percent over Q4 2006, according to Reyes, despite the loss of some publisher partners, including Viacom, during the quarter.
Google is experimenting with various means of improving the performance of ads served on social networking platforms, including Myspace -- with which it has a long-term relationship -- Google's own Orkut service, and numerous others.
Specific plans for improving the monetization of such sites include enhancing demographic targeting and optimizing the ads' look and feel.
"We're running lots of experiments," Page added. "It's a big opportunity because it's so much inventory."
Regarding YouTube, CEO Eric Schmidt said the video site had grown very quickly in the U.S. and overseas. He hinted at a new round of "very sophisticated" video ad products, and said the company is working on simplifying its video offerings to please advertisers.
"There's been an issue around standardizing ad formats for advertisers who would like to do [integrated] buys," he said.
Google's revenues from outside the U.S. made up 48 percent of its total for Q4, and the U.K. accounted for 14 percent of global revenue.
The earnings report was preceded by an extended decline in the company's stock price, during which per share value fell 26 percent from a peak of 741 in early November to 548 last week.
That decline may be partly owed to fears of a recession's impact on all advertising, and partly to recent ComScore findings that Google lost a hair of market share in December, while Yahoo gained slightly. However, the Mountain View company's conquest of search ad dollars continues unabated. Among clients of SEM firm Efficient Frontier, Google's share of the overall search marketing spend grew to 77 percent .
Schmidt said the company has picked up no hints of a macro-economic slowdown in its advertisers' spending activity.
"I'm happy to say that we have not yet seen any negative impact from the rumors of future recessions," he told investors. "We'll see what happens."
Google's TAC continued to rise during the quarter, including payments made to search and AdSense publisher partners, representing 30 percent of all advertising revenues for the quarter versus 29 percent in Q3.
Strong as they were overall, the results appear to have missed Wall Street expectations for the company, as its share value declined 7 percent in after hours trading.
This report has been updated with new information.
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