Google's results for Q2 2007, announced last night, showed a 58% increase in revenues year-on-year to $3.87bn, which is also a growth of 6% over the Q1 2007. Growth in advertising on Google sites (and especially Google's main search sites in all its national varieties) grew a strong 74% year-on-year to $2.49bn. Revenue from ads placed on Google partner websites via the AdSense programme grew a less impressive but still good 36% to $1.35bn. The revenue from licensing and other revenue (mainly but not exclusively Google's corporate search appliances) grew 24% to $33.6m. Revenue from the UK the one country outside the US that Google reports on because of its size grew to $600m in the quarter, an increase of 62% year-on-year. Operating income increased 35% to $1.10bn, and net profit went up to 28% to $925m.
The operating income fell by 11% in comparison to the previous quarter. Google's explanation was that its hiring was a little ahead of plan and there were higher than usual bonus payments to staff. A significant chunk of that hiring was here in the UK where Google is developing further technologies for mobile platforms although staying very tight-lipped about exactly what it will be offering. Despite these, there was a decline in Google's share price in after-hours trading.
More worrying to us is that Google's traffic acquisition costs (TAC) seem to be on the rise. The most likely explanation is that Google is having to pay out more to partners to keep gaining more slots on partner sites and so increase the total take. Some of the larger partners are, we suspect, playing hard-ball on their share of the revenue.
Google is looking to provide far more services to corporates, such as hosted email and a full set of hosted office applications. Having recently tried to use its word processor in earnest myself, I found it somewhat disappointing not even a pale imitation of Microsoft's word. I can't help feeling that this isn't the end of the story, and that Google is working on something brighter and better, like a re-conceptualisation of the entire office automation space. But maybe that's just a case of Googleanoia, or Google-induced paranoia, or even being a googlephile.
Full commentary below:
Comment: The number that has attracted most attention is the operating income because it fell by 11% in comparison to the previous quarter. Google's explanation was that its hiring was a little ahead of plan (but it was not worried by this) and there were higher than usual bonus payments to staff (without going into detail, it said this wouldn't be repeated). A significant chunk of that hiring was here in the UK where Google is developing further technologies for mobile platforms although staying very tight-lipped about exactly what it will be offering. Despite these highly plausible explanations, there was a decline in Google's share price in after-hours trading. Google trades at such a high multiple that, frankly, a butterfly flapping its wings in Tahiti could affect the price.
More worrying to us is that Google's traffic acquisition costs (TAC) seem to be on the rise. These are fees that Google pays to partner sites mainly for hosting Google-powered ads, but to a lesser extent for directing traffic to Google websites. TAC as a proportion of AdSense revenue in the most recent quarter was 85% compared to 79% a year ago. Since not all TAC is due to AdSense, there may be other reasons behind this increase, but it does look like Google is having to give its partners an ever greater share of the advertising revenue. The most likely explanation is that Google is having to pay out more to partners to keep gaining more slots on partner sites and so increase the total take. Some of the larger partners are, we suspect, playing hard-ball on their share of the revenue.
Turning finally to the licensing business, a growth of 24% year-on-year would be excellent for most software vendors but it is still a low number in comparison to the rest of the business; Google is looking to provide far more services to corporates, such as hosted email and a full set of hosted office applications. Having recently tried to use its word processor in earnest myself, I found it somewhat disappointing not even a pale imitation of Microsoft's word. I can't help feeling that this isn't the end of the story, and that Google is working on something brighter and better, like a re-conceptualisation of the entire office automation space. But maybe that's just a case of Googleanoia, or Google-induced paranoia, or even being a googlephile.
-Ends-
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