Google Nearly Doubles Profits, Overseas Strong

Google reported strong revenues for the third quarter, led by search, and expects its recent video content deals to bring more success in the future.

“Business is very, very good here. We had an excellent quarter in all respects, especially international,” said Google CEO Eric Schmidt.

Google revenues reached $2.69 billion for the third quarter, up 70 percent over last year’s $1.6 billion in the third quarter, and up 10 percent over last quarter’s $2.46 billion. Net income for the quarter rose 92 percent from the same period last year to $733 million, or $2.36 per share; a slight increase over last quarter’s $721 million, or $2.33 per share.

Revenues from outside of the United States contributed 44 percent of total revenues in the third quarter of 2006, compared to 42 percent in the second quarter of 2006 and 39 percent in the third quarter of 2005.

Google-owned sites generated 60 percent of total revenues in the quarter, or $1.63 billion, while AdSense partner sites brought in 39 percent of total revenues, or $1.04 billion. In the same period last year, Google-owned sites brought in 56 percent of revenues.

Traffic acquisition costs (TAC), or the revenues shared with Google’s AdSense sites and distribution partners, increased to $825 million in the third quarter, up 56 percent from $530 million a year ago, and up 5 percent from $785 million in the second quarter. TAC as a percentage of advertising revenues fell to 31 percent in the third quarter from 34 percent a year ago, a slight dip from 32 percent in the second quarter. That number shows more of Google’s revenue coming from sites it owns.

Schmidt outlined five main drivers of success in the quarter: strong user growth and improved search quality; better ad quality; diversity of Google’s business; a “blizzard” of new product launches; and Google’s partnerships.

Google struck several partnership deals, notably several distribution deals with major studios made right before the YouTube acquisition was announced. Many of those deals include provisions for some form of revenue sharing, according to Schmidt.

“The best partnership comes when both partners have a share in the success of those deals,” Schmidt said.

Applying Google’s monetization engine to quality video content from top publishers will bring success for both, Brin said. Improved ad targeting, and a growing advertiser and user base, will allow Google to come up with new ways to monetize that content, he said.

To address the confusion that began to result from so many product launches, Sergei Brin, Google’s co-founder and president of technology, has begun a push inside the company to build horizontal “features” integrated into existing products instead of separate new products, he said.

“I’m concerned that if we continue to develop individual products in silos, users will have to search for the features first before they can do a search,” Brin said. To that end, Google is beginning to integrate more of its search products into its general search results, he said.

Earlier this week, Yahoo reported disappointing results, and chairman and CEO Terry Semel immediately went on the offensive, accelerating the launch of its Project Panama search marketing platform, and touting Yahoo’s video prowess in a clear response to Google’s YouTube acquisition.

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