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Google’s Q3 Numbers Don’t Show a Company in Trouble



Everyone’s favorite pastime these days seems to be predicting the imminent demise of Google. Whether it’s because Bing is becoming a real competitor (to which I say puh-leeze) or that their unbalanced revenue generation with depends so much on search marketing ads or their difficulty with the social side of the web or how they are shuffling executives and losing talent. Those are the majors but the list goes on.

Well, yesterday Google reported its third quarter earnings and it doesn’t appear that this perception is quite aligned with reality.

From the Google Investor blog

“Google had an excellent quarter,” said Eric Schmidt, CEO of Google. “Our core business grew very well, and our newer businesses — particularly display and mobile — continued to show significant momentum. Going forward, we remain committed to aggressive investment in both our people and our products as we pursue an innovation agenda.”

Corporate speak? Sure is but there are numbers to back it up. I highlighted some obvious “look at the increase” stuff but look at the numbers as a whole. It tells a story not often heard in business these days.

Google reported revenues of $7.29 billion in the third quarter of 2010, representing a 23% increase over third quarter 2009 revenues of $5.94 billion.

Google-owned sites generated revenues of $4.83 billion, or 67% of total revenues, in the third quarter of 2010. This represents a 22% increase over third quarter 2009 revenues of $3.96 billion.

Google’s partner sites generated revenues, through AdSense programs, of $2.20 billion, or 30% of total revenues, in the third quarter of 2010. This represents a 22% increase from third quarter 2009 network revenues of $1.80 billion.

Revenues from outside of the United States totaled $3.77 billion, representing 52% of total revenues in the third quarter of 2010, compared to 52% in the second quarter of 2010 and 53% in the third quarter of 2009.

Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 16% over the third quarter of 2009 and increased approximately 4% over the second quarter of 2010.

Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 3% over the third quarter of 2009 and increased approximately 2% over the second quarter of 2010.

Traffic Acquisition Costs, the portion of revenues shared with Google’s partners, increased to $1.81 billion in the third quarter of 2010, compared to TAC of $1.56 billion in the third quarter of 2009. TAC as a percentage of advertising revenues was 26% in the third quarter of 2010, compared to 27% in the third quarter of 2009.

Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs as well as credit card processing charges, increased to $747 million, or 10% of revenues, in the third quarter of 2010, compared to $667 million, or 11% of revenues, in the third quarter of 2009.

Net cash provided by operating activities in the third quarter of 2010 totaled $2.89 billion, compared to $2.73 billion in the third quarter of 2009. In the third quarter of 2010, capital expenditures were $757 million, the majority of which was related to IT infrastructure investments, including data centers, servers, and networking equipment. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the third quarter of 2010, free cash flow was $2.13 billion.

Ok, so let’s review. Increases in revenue across the board with total with a year over year increase of 23% for the quarter in a time when the economy is arguably getting worse and not better. Enough said because their core business is still strong and there is no real competitive threat in the foreseeable future. The only way this gets dinged is if people search less and that’s not going to happen.

Greg Stirling reports from Search Engine Land

Google’s Jonathan Rosenberg disclosed the following revenue numbers:

$2.5 billion in display (non-text) and $1 billion in mobile ad revenues. Google’s CFO said there was some small overlap in these numbers (i.e., AdMob).

The New York Times reported

“Where’s the next multibillion-dollar business after search?” said Jonathan Rosenberg, senior vice president of product management at Google, on the call. “There’s your answer. It’s display and it’s already here.” About mobile, he said, “Clearly this is the future of search and the Internet.”

Looks like Google is serious about this one since they are actually advertising it in traditional channels.

So for all of the talk of Google’s stumbles and weaknesses there is no real evidence that there is trouble….yet. There is always the chance for Google to become completely complacent, fat and happy thus letting their lead slip through their hands. I just don’t see it. With the lack of real competition in search they only need to stay awake at the wheel to keep that lead in place. They do that pretty well. Yes, they could stand to be more innovative but innovation can also be taking place in other areas outside of the core search business.

Then there’s Android. MG Siegler does a god job of examining this part of Google’s present and future over at TechCrunch. Here’s a snippet

Schmidt called Android “probably the largest single platform play in the market today.” And going forward, he thinks that’s only going to increase as more and more people buy smartphones. At the same time, “in the open source approach, that means we give the software away, which is always paradoxical. People say, well how do you make money from that?,” Schmidt was quick to jump to.

“The evidence we have is that people who use Android search twice as much as everything else,” Schmidt continued. “So, clearly, there is more revenue associated with those searches.”

Oh and lastly, while the following number is not going to impact overall unemployment numbers at least Google is doing something that others are using the economy as an excuse to not to: they are hiring.

“Simply put, we’re on this growth agenda at full throttle,” said Patrick Pichette, Google’s chief financial officer.

Google hired 1,526 people in the quarter, which included the postgraduation hiring months, bringing the total number of employees to 23,331.

So while I am not a Google apologist because they, like all other companies, are far from perfect, it’s real difficult to sit here and grouse about their troubles, issues and apparent fall from grace. I’m not seeing that. Are you? And if you are is it because of your distaste for all things Google or are you basing it on reality? If it’s reality then please explain because I must be missing something.