Mark Twain once quipped "The news of my death has been greatly exaggerated." The same seems to be true for the state of the Internet advertising market. Thursday, with a market on pins and needles in anticipation, Google (GOOG) reported Q1 earnings. Contrary to fears, the news was good.
From the rooftops in Mountain View, Googlers could signal the all clear sign. Not far away, at Yahoo (YHOO), the news (and its expected impact on Microsoft’s (MSFT) takeover efforts) was also greeted with excitement. Good reports from Google rebuff anecdotal claims about a faltering Internet economy with fact.
During the analysts’ conference call, CEO Eric Schmidt told analysts, “It’s clear we are well positioned for 2008 and beyond, regardless of the business environment we are surrounded by.”
Overall, Google reported revenues of $5.19 billion, a 42% rise over the same period last year and a 7% sequential improvement over Q4 2007. Traffic Acquisition Costs for the quarter, which are the fees paid to partners, represented 29% of advertising revenue, or $1.49 billion. Excluding stock option charges, the company would have earned $4.84 a share. That result well exceeded Thomson’s consensus expectations of $4.52 a share.
Into the details: among the different categories of revenue, Google-owned sites showed the strongest growth. They were up 49% year over year (9% sequentially) to a total of $3.4billion. The home owned sites accounted for 66% of total revenues. Partner sites, which run through AdSense, were more measured. They were up 25% over last year to revenues of $1.35billion. Quarter by quarter, partner sites showed only a 3% increase over Q4.
Geographically, international revenue remained a relatively constant allocation. This quarter it represented 51% of total revenues, an increase of a few percentage points, partly due to currency fluctuations. The UK was the largest single foreign contributor with $803m, or 15% of total revenue.
Paid clicks (the number of times ads are actively clicked on) was the hot zone many analysts were watching. The company reported they were up 20% year over year. There wasn’t strong quarter to quarter improvement. Schmidt said the company is “showing fewer, but much better ads” and attributed the results to quality over quantity.
Operating income for the quarter, counted by GAAP standards, came in at $1.55b which amounted to 30% of revenues. Net income, on a similar accounting basis, was $1.31b, up sequentially from $1.21b in Q4 2007. Earnings per share were $4.12, spread across 317m shares, compared to $3.79 in Q4.
By topping estimates again, this marked the 12th quarter in Google’s 15 as a public company that they beat the consensus.