Google Announces Disappointing Earnings: Who Is First To Go?

Jul 20, 2007 • 7:29 am | comments (3) by twitter Google+ | Filed Under Other Google Topics
 

Google announced earnings last night, Greg Sterling covered it over at Search Engine Land. Right now, GOOG is down in the pre-market to 507.00, or down $41.59 or down 7.58%.

Google reported revenues of $3.87 billion for the quarter ended June 30, 2007, an increase of 58% compared to the second quarter of 2006 and an increase of 6% compared to the first quarter of 2007. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the second quarter of 2007, TAC totaled $1.15 billion, or 30% of advertising revenues.

My first reaction when reading the release last night was, "only a 6% increase compared to the previous quarter?" That is not Google like, I thought. Soon after, the news coverage began spilling in, Techmeme has a lot of the coverage:

Words like "misses,"fall short," "disappointment," and "drunken sailors," are simply not Google-like headlines.

The fact of the matter is, Google spends a lot as a company, relative to others. People cite food as the first thing to go, to save the company money. Well, I am not sure about that. But let's look at how this may impact the SEO community.

We have been pushing Google to provide support to SEOs and Webmasters for the free organic side of their business. Google has been investing heavily in Google Webmaster Central. Do they make any money from it? Does it make sense for them to keep making Webmasters happy? Are Webmasters even happy about knowing more or does it just fuel their anger?

I am not saying that Google is going to ditch Google Webmaster Central and the tools and support people that come with it. I doubt it even makes a large dent in their cost structure. But they all add up.

Google cited a major cost were AdSense publisher payments and "certain partners that were less favorable to revenues," via FT.com. But the major reason was hiring and bonuses.

Forum discussion at WebmasterWorld, DigitalPoint Forums and Search Engine Watch Forums.

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Comments:

Azam

07/23/2007 10:44 am

I disagree with the notion that Google has to start taking knee-jerk reactions (to cut down the flabs) due to their recent financial report. I don't know about the rest of you, but 6% Q-on-Q growth is still great by any measure. Factoring the 58% Y-on-Y growth, that is still very impressive. Granted that Google is still a relatively young company, but its rapid growth means that it is bound to hit its growth end of the curve pretty much faster than everybody else. (Now, I am not suggesting that it has but we should all bear that in mind when that happens.) Remember that they have been making some very serious acquisitions and expanding into new markets in the first half of this year (and more before that). Perhaps, its taking some time for all their recent acquisitions to bear fruit, thus the "disappointing" results. As such, I think the drop in their share price can be attributed to unrealistic expectations spurred on by speculators and the media (whom I suspect cannot wait for the Google bubble to burst). Its still early days for us to see how this (drop in share price) plays out but I'd bet my last dollar that its going to go up again soon. If you extend the horizon further, then, there is surely no place but up for their stocks. On that note, allow me to go back to my point: Isn't it way to premature to even give them idea to stop giving away stuff for free?

Adam Lasnik

07/23/2007 09:29 pm

I have to respectfully note that the speculation is way off base. 1) Not meeting expectations != not outstanding performance. 2) Both Larry and Eric have personally expressed admiration and appreciation for our broadening communications with webmasters. (I'd expect Sergey is in favor, too, but I don't have any info on that.) This isn't a passing fad, nor (I'd think) a huge expense. 3) You do the math on food ;). Calculate the time it'd take to drive to a place with decent food, park, order, receive and eat food, drive back to campus, and find a parking spot (note that we're in an industrial area, not amongst walk-to-able food places). Then take a guess as to what that amount of time is worth to Googlers' productivity. I'm guessing the cost of our food services is quite substantively less than the productivity gain (not to mention the recruiting glow :-) * * * Basically, what Azam said. Google is (thankfully) not known for knee-jerk, illogical decisions. :-)

Barry Schwartz

07/23/2007 09:42 pm

Love the confirmation Adam!

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