Google Hits Record Revenue Levels

Online ad growth drove search giant Google to post record revenues of $1 billion for the fourth quarter of 2004, up 101 percent over the same period in 2003. Net income came in at $204 million, or $0.71 a share.

“As you know the fourth quarter is typically a strong quarter for our sector and this year was no exception,” said George Reyes, the company’s CFO. “We attribute the strength to strong holiday traffic growth and continued improvement in and Google network monetization rates.”

The company also released figures for the full year of 2004. Revenues for that period were $3.2 billion, resulting in net income of $399 million, or $2.07 a share.

Google executives attributed the improvement to marketers’ increased interest in online advertising and a stronger focus on international initiatives. They also noted efforts to court Fortune 1000 advertisers and their ad agencies, a re-structuring of the sales force to go after vertical markets, and the development of the Google AdWords Professional program.

The company doesn’t think rising per-click prices will dissuade advertisers from upping their expenditures on paid search and contextual ads.

“We believe that the largest companies worldwide have many, many, many dollars, and other appropriate currencies, to invest in our type of online advertising,” said Eric Schmidt, Google’s CEO. “There doesn’t seem to be resistance with respect to pricing, but significant headroom if it’s required.”

The company credited improvements in its ad targeting technology for some of its revenue growth. Because of that, the employees behind those improvements were some of the first recipients of a new prize aimed at employee attraction and retention, the Google Founders Award. Under the award program, the company doled out $12 million in restricted stock units in aggregate for the quarter, with the ad technology innovators getting an undisclosed share.

“We’ve been making product improvements over the past year,” said Schmidt. “Some of that has really driven improvements in monetization.”

Google executives dodged a question aimed at gauging the relative performance of its AdSense for Content product, which has drawn criticism from advertisers. Co-Founder and President of Technology Sergey Brin would only say, “We’ve obviously started in that market very, very recently and I think we’re going to see big improvements — we’re working on big improvements — which will improve the monetization rates there.”

The company also expressed high hopes for improvements in local search and local advertising, but executives said it would take time to develop both the user and advertiser sides of the business.

“Everyone is very excited about local but I think it will take some time to develop all of these aspects in a way that will make it a success for consumers,” said Larry Page, co-founder and president of products at Google.

Despite competitor MSN’s splashy launch campaign for its new search product, Google execs pooh-poohed the idea that the company might get more aggressive with its own marketing. Google has not been a big spender on traditional marketing. In the fourth quarter, the company spent just $76 million on both sales and marketing.

“I don’t see a material change in the amount of money that we are spending here,” said Schmidt. “We have not found a need to change the way we market our products and services. I think we’re doing very well with the current tactics.”

Though Google doesn’t share its financial expectations for the upcoming quarter and year, company executives shared some priorities. International growth, both in product offerings and in sales efforts, will be a big focus in 2005. The company also expects to make more acquisitions in the coming months.

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