Google Q3 Revenue Up Nearly 60 Percent as Ad Expansion Continues

Google reported revenue growth of nearly 60 percent in Q3 2007 since the same period last year. The company said revenues for the quarter hit $4.23 billion, up 57 percent from Q3 2006 and up 9 percent from Q2 2007, when revenues reached $3.87 billion. Execs speaking during this afternoon’s earnings call stressed continued experimentation with ad formats as well as search results quality improvements as monetization and traffic drivers; they also hinted at behavioral targeting trials and streamlining of the Google ad sales force.

The portion of revenues gleaned through Google-owned sites has increased in the quarter ended Sept. 30, 2007 since Q3 2006. Revenues derived from Google’s sites accounted for 65 percent of total revenues, or $2.73 billion, up 68 percent over Q3 of last year. During that quarter, Google-owned sites generated 60 percent of total revenues.

AdSense partner site revenues accounted for 34 percent of all revenues in the third quarter of this year, reaching $1.45 billion, up 40 percent over the same period a year ago. Since Q3 2006, the portion of network site revenues has lowered from 39 percent of all revenues. “We’re working on expanding our breadth of ad offerings,” said Google Chairman and CEO, Eric Schmidt while addressing investors.

One of the firm’s latest ad innovations was launched in conjunction with its new video content distribution network, introduced earlier this month. “Initial user response rates and feedback have been positive,” said co-founder and President of Technology Sergey Brin, noting click-through rates of the overlay ads served with the video have been better than expected. In discussing the new format, Brin explained that offering pre-roll advertising in the AdSense video network “would really not make sense…. It would be very distracting,” he added.

In its early testing of video, however, Google did try in-stream video ads through a partnership with Viacom’s MTV Networks. Google SVP Product Management Jonathan Rosenberg hinted at the company’s behavioral ad targeting experiments. “We’re looking at the previous query to try and figure out what to do on the next query” he said. Improving ad quality by “eliminating bad ads” is also a focus, he said. “As we improve ad quality…you’ll see the CPC increase,” he continued.

The aggregate number of paid clicks on Google site ads and partner site ads leapt 45 percent in Q3 compared to the same period last year. Traffic Acquisition Costs, primarily from AdSense and distribution partners, ate up around 29 percent of ad revenues, or $1.22 billion. “As we grow our AdSense partner network…we may see pressure on TAC rates going forward,” said George Reyes, Google’s SVP and CFO. The firm paid its AdSense partners $1.12 billion and distribution partners and other site traffic drivers $105 million in Q3 2007.

“We were particularly pleased with our AdSense performance,” said Reyes, adding, “We experienced a continued increase in traffic and improvement in our ability to monetize our newer partner relationships.”

As for search distribution partners such as MySpace, Brin said Google has “been pleased with the advertising performance” on the social networking site. “I think these social networks are going to require different types of targeting,” he continued, noting the abundance of ad inventory and other unique characteristics of social network sites and users. “There are a lot of things that make it hard,” he added.

Google appears to be streamlining its ad sales force, and training salespeople to sell all its products across properties including YouTube, rather than having multiple sales forces dedicated only to certain products and services. The company said it added over 2,000 employees in Q3, mainly in its technology and advertising and marketing departments, bringing the total staff to over 15,000.

Google was mostly mum during the call on its proposed acquisition of DoubleClick. However, Schmidt did comment, “We’re following all the appropriate steps,” in terms of ongoing investigations into the deal by U.S. and EU regulatory bodies. “We’re certainly optimistic…. We believe it will ultimately result in a very good outcome for us.”

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