Google: Social Networking Inventory Not Monetizing as Well as Expected

Speaking on the company’s post-earnings conference call, Google (GOOG) CFO George Reyes said the company has found that “social networking inventory is not monetizing as well as expected,” leading to higher than expected traffic acquisition costs. TAC of $1.4 billion was 30.3% of ad revenue, up from 29.1% in the third quarter.

This has huge nasty implications for social networking sites which I suspect you will be hearing a lot about in the days ahead.

Some other details from the call:

Gross revenues were up 51% in the quarter. Google properties revenue was up 58%. Adsense revenue was up 37%, negatively impacted by quality improvements to Adsense. Paid clicks were up 30% year over year, and 9% sequentially.

International was $2.3 billion, or 48% of total revenue.

Headcount rose 889 people in the quarter.

Non-GAAP operating margins were 35%, down from 36% in the third quarter, due to the higher TAC.

Cash flow was $1.7 billion; cap ex was $678 million, bringing free cash flow to $1 billion.

After hours, Google is down $47.30, or 8.4%, to $517.

Comments

[Lisa]

He must have been referring to a particular third party customer, because Google doesn't pay TAC on its own traffic. Which social networking sites does Google have deals with?

2008 Jan 31 05:29 PM

[Lisa]

OK, I found the answer:

Google & MySpace In $900 Million Deal On Search & Contextual Ads
blog.searchenginewatch...

This means that NWS is doing worse than expected.

2008 Jan 31 05:30 PM

[David Jackson]

Excellent comment Lisa -- we'll add NWS to the tickers this story is tagged with.

2008 Jan 31 05:32 PM

[Long-Short Guy]

Why is this a surprise? Everyone knows that MySpace is really low quality ad inventory. Who wants to pay for clicks from MySpace?

2008 Jan 31 05:36 PM