Google- Q3's 2008 revenue rise

October 16, 2008 (IDG News Service) Google Inc. increased its revenue and profits in the third quarter, and top executives said the results were good and pledged to manage the business with a long-term outlook despite the global economic challenges.

Google reported total revenue of $5.54 billion for the quarter, which ended Sept. 30 — up 31% compared with last year's third quarter.

After deducting the commissions that Google pays to its advertising partners, the final revenue count came in at $4.04 billion, slightly below the $4.05 billion consensus expectation of analysts polled by Thomson Reuters.

Net income was $1.35 billion, compared with $1.07 billion in the third quarter a year ago.

On a pro forma basis, which includes one-time items, income amounted to $1.56 billion, or $4.92 per share — exceeding the consensus expectation from analysts of $4.75 per share.

"Google had a good quarter," CEO Eric Schmidt said during a conference call about the financial results. "Traffic and revenue were both solid, and we kept tight controls on costs."

Schmidt said that as the global economic crisis squeezes marketing budgets, companies are seeking to maximize their advertising spending. That benefits Google, he added, claiming that search advertising — the company's core business — is both highly effective and easy to monitor and analyze.

Economic woes also lead consumers to use search engines more as they evaluate shopping options and compare prices, according to Schmidt.

With so much economic uncertainty, Google will stick to its strategy of focusing on long-term growth and results, investing in its business as it sees fit and not making decisions for short-term gains, he said. That means making investments to improve the quality of the company's search engine for users and the quality of ads for marketers, he noted.

Although they account for a much smaller portion of Google's business, Schmidt said that the company's enterprise products, such as its enterprise search tools and hosted applications, also stand to benefit from the downturn as IT and business managers seek lower-cost technologies.

Display advertising, which has traditionally been a minor business for the company, is also growing at Google, thanks in part to the integration of DoubleClick Inc. and to the increased placement of graphical and rich media ads on Google sites such as YouTube, Schmidt said.

"We're very realistic about the economic climate, but we're optimistic about the future," he said.

Sergey Brin, Google's co-founder and president of technology, said that for the second quarter in a row, the company rolled out more than 100 enhancements to its search technology, in areas such as index size, performance, result quality and ad matching.

Google has also beefed up its software and hardware systems so that services such as its online calendar will perform better, Brin said. He added that there are now about 1 million businesses using the Google Apps hosted collaboration and communication suite.


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Regarding the deal that calls for Yahoo Inc. to run Google search ads, Schmidt said that when the companies signed it back in June, they were aware that it would be considered controversial and that competitors would oppose it. That's why Google and Yahoo decided to delay its implementation to give the U.S. government a chance to review it, he said. The federal review is ongoing.

Asked about the negative reaction from some large advertiser industry groups, Schmidt said the opposition stems from a lack of understanding of how the auction process for search ads works.

The advertiser groups have expressed concern that the deal will drive ad prices up, but Schmidt argued that the auction model would prevent that from happening. "Auctions provide a clearing price for accurate value," he said.