Sunny Google Sees Downturn’s End

Google reported strong earnings for the third quarter today, and CEO Eric Schmidt reiterated his recent statements that Google thinks an economic recovery is on the way.

“While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future,” Schmidt said today during an investor conference call.

Schmidt credited Google’s tight control of costs and continued innovation in search and advertising for its ability to weather the economic storm as well as it has.

Examples include the new AdWords front-end, which was rolled out to nearly all advertisers during the quarter, new local listing ads, and a new mapping infrastructure that will allow Google to improve its local search and local ad experience, according to Jonathan Rosenberg, Google’s senior VP of product management.

“Everything is finally in place for small businesses to connect with users online,” he said, referring to the combination of an improved ad infrastructure, geographic data, Google Voice and Place Pages updates made during the quarter.

Schmidt said Google will continue to invest in the core search and advertising areas, both in terms of hiring new employees and acquiring companies. Other areas of investment include mobile search, the Android mobile operating system, and the Chrome browser, he said.

“Google is ‘open for business’ in making acquisitions, both large and small,” Schmidt said. He later amended his comments to say that a large acquisition like DoubleClick or YouTube would be “relatively rare.” More likely acquisition targets would be small companies that offer technology that would complete one of Google’s current products. He said that could be in a vertical search area, display ads, Chrome, Chrome OS or Android, for example.

Google revenue grew 7 percent year-over-year to $5.94 billion for the quarter ended September 30, 2009. After considering traffic acquisition costs (TAC), net revenue was $4.4 billion for the quarter. Adjusted net income for the quarter rose 20.5 percent compared to the same period last year, to $1.9 billion, or $5.89 per share.

Financial analysts expected Google to report $4.2 billion in revenue after TAC and $5.42 in adjusted earnings per share (EPS), according to Thomson Reuters, so Google slightly exceeded their expectations.

Revenue from Google-owned sites represented 67 percent of total revenues, up 8 percent over Q3 2008 to $3.96 billion. Revenues from AdSense partner sites rose 7 percent year-over-year to $1.8 billion, or 30 percent of total revenues.

Paid clicks on Google sites and AdSense partner sites rose 14 percent over last year’s third quarter, and 4 percent over Q2 2009. Average cost-per-click was down 6 percent year-over-year, and down 5 percent from the previous quarter.

According to ComScore’s September search rankings, Google owned 64.9 percent of searches during the month, up 0.3 points from August. During the same time, Microsoft Bing gained 0.1 point to garner 9.4 percent of searches, and Yahoo lost 0.5 points to hold onto 18.8 percent of searches.

In May 2009, before Bing launched, Google held 65 percent of searches, Yahoo had 20.1 percent of searches, and Microsoft’s Live Search had 8.0 percent of searches, according to comScore. That would indicate that Bing is stealing share from Yahoo, and not from Google.

Yahoo will report its Q3 earnings on Tuesday, and Microsoft will report its quarterly earnings on October 23.

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