Just three months ago, Fortune magazine depicted Google as a company in decline: "its core business is slowing, its stock is down, its Android mobile platform generates scant revenue," wrote Michael Copeland and Seth Weintraub. The rap on Google was that it's overly dependent on its signature "cost-per-click" text-based advertising scheme. Though it seems to roll out innovative new products every week, few of them generate profit.
At the time, some business observers pushed back against this depiction, arguing that Google was actually quite healthy. Now could be their moment of vindication. The search giant has released its Q3 earnings and the company is seeing significant growth beyond paid search in areas such as mobile and display advertising. Is Google branching out beyond text-based advertising?
- It's Time to Stop Questioning Google's Ambitious Investments, writes Jessica Guynn at The Los Angeles Times:
Windmills? Driverless cars? Let Google do whatever Google wants. Shares jumped 8% in after-hours trading to $578.16 after the Internet search giant walloped expectations Thursday. Net income rose 32% to $2.2 billion, or $6.72 a share, from $1.6 billion, or $5.13 a share, even as Google added 1,500 employees in the third quarter and spent more than four times as much on data centers and other equipment than it did a year ago.
That's because Google, which rules Internet search advertising, was able to charge advertisers higher rates for ads and more Internet users clicked on those ads.
- No Longer a One-Trick Pony, writes Larry Dignan at ZDNet: "Google’s strong third quarter report and ensuing conference call went a long way toward portraying the company as a three-headed growth monster. The overarching theme: Google is more than paid search. It’s a large display ad player and a force on the mobile front. Google’s quarter topped estimates on both the top and bottom lines":
-Display and mobile ads now account for 6 percent of net revenue.
-Display ad annual revenue run rate is $2.5 billion.
-YouTube is monetizing 2 billion page views a week, up 50 percent from a year ago. Executives were coy about YouTube profits, but the unit is clearly closer to where it needs to be.
-Mobile is clocking an annual revenue run rate of $1 billion a year.
- Google Is Still a One-Trick Pony, counters Henry Blodget at Business Insider:
The $2.5 billion is gross revenue, not net revenue, and it is therefore far less profitable for the company than the majority of Google's revenue. This... is critical. The reason Google is so amazingly profitable is that it keeps 100% of the revenue for AdWords--the sponsored search results that appear on Google's search pages. Since Google has not yet stooped so low as to serve display and video ads on its own pages, however, it has to share display revenue with content partners. The average split for this display revenue is probably on the order of 70% to the partner and 30% for Google. ...
So, put that all together and what do you get? Google likely passes at least 50% of its $2.5 billion of non-text ad revenue through to content partners. This means that, on a 'net revenue' basis, Google's non-text ad business generates only $1-$1.25 billion of revenue, or only about 5% of Google's total revenue.
This article is from the archive of our partner The Wire.
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