Mixed reactions to Google’s Revenue Report

July 23rd, 2007: Google released its second quarter profit results overnight to mixed reactions. The internet monolith reported a 58% increase in revenues year-on-year to $3.87bn, with advertising growth on Google sites growing a strong 74% year-on-year to $2.49bn.

Meanwhile revenue from ads placed on Google partner websites (via the AdSense program) grew a less impressive 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.

However all is not well in paradise as operating revenue fell 11% in comparison to first quarter 2007 results, well below expectations. Google blames this on hiring ahead of plan in the UK where it’s looking to expand its out of hours services.

According to David Bradshaw, chief analyst at Ovum it’s worrying that Google traffic acquisition costs (TAC) appear 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,” he says

“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.”

Despite the less than expected increase in revenue, Google still continues to dominate in the US search engine race. Comscore results for June 2007 show Google still well ahead of the pack with 49.5% share of online searches, followed by Yahoo at 26.4% and Microsoft Sites up 2.9% to 13.2%.

So although revenue has slipped, Google’s flagship search engine dominance continues to shine. Also, as Bradshaw explains in regards to Google’s expansion into business licensing, “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.”

It may be less then expected, but Google’s rapid expansion and market dominance continue to hold true.

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