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Google: 3Q Results Reveal Chinks in the Armor

"The new talk of Microsoft acquiring Yahoo won’t help matters either. If these two finally get together, they could present formidable competition to GOOG, eventually chipping away at market share."

If you really think a combined Microsoft and Yahoo will preset a formidable challenge to Google, I would guess you have a poor understanding of the search-advertising market. No offense. Most people don't.

I work with the 3 major search engines every day, spent about $1.5 million on search advertising so far this year.

#1 - Search advertising is an auction/bidding based system. You bid on keywords, and whoever has the highest bid and the best ad gets their ad placed higher (more traffic/leads). Read up on Google's quality score if you're not familiar with this process. If people are getting great sales/leads from Google at x price, will they decrease their spending if microsoft and yahoo merge? No.

#2 - Microsoft and Yahoo's search technology isn't even close to Google's. Their results just aren't as good, period. Their advertising platforms lag far, far behind as well.

If Microsoft does buy Yahoo, they'll probably insist that Microsoft's search remains the main platform, and Yahoo features be integrated. What a disaster that would be, ugh. Bickering engineers, red-tape hell, etc.

If you think a Yahoo/Microsoft merger will solve these problems.... Good luck to you sir.

Google is suffering from the downturn, just like everyone else. But I'm holding my shares and waiting to buy more.

Why Buffett Would Not Buy Google

Interesting piece, but this is incorrect:

"the way the company makes 99% of its money is by putting publishers and advertisers together"

Google makes the vast majority of its profits from Adwords (ads that are on search results). There are no publishers involved in this aspect of their business, at any point. If you search for "car insurance" and click on a Geico ad, $5 (estimate) goes directly to Google.

The smaller part of their business is Adsense, which are text-ads on publisher sites. Lots of revenue here, but not nearly as much profit as Adwords. With Adsense, they pay publishers about 60-90% of the revenue generated per-click from advertisers. They keep 100% with Adwords.

So as long as Google dominates search (which should be a very long time, I think) their main source of profits will be intact and growing healthily.

Is Google Scared?

Not true that Adsense has no incentive for publishing good content. If you have a high quality site, advertisers will specifically target it for CPM (cost-per-thousand) ads. This drives up the amount of money you're paid for both types of ads - CPM and PPC.

Google Longs: Consider Yourselves Lucky

Microsoft shareholders seem to disagree with you. Maybe some have looked into how well MSFT manages their web properties (not well). This deal has the potential to make Time Warner & AOL look like a marriage made in heaven.

Google has pulled back, it's a great value here. They will continue to dominate and extend their lead while Microhoo stumbles around, dazed and confused.

Despite 4Q Miss, Google's Still a Good Investment

Nice, I hadn't seen that Goldman commentary yet. The one thing I don't think enough people are commenting on is that a lot of the earnings shortfall was probably due to Google having to make payments to Myspace & other partners because of minimum payment clauses in their agreements. They shouldn't make that mistake again when negotiating with big content-partners.

Check out the earnings call, they go into this topic a few times. Reyes even refers to it one point as something that will probably be a one time "Q4 event".

Google: A Buy On MSFT/YHOO News?

Oops, that was a comment by anon, not Thomas.

Google: A Buy On MSFT/YHOO News?

Hi Thomas. Please explain "GOOG PEG is low because its growth is overestimated @ 25%".

My take - They only missed avg earnings estimates by .01 after you remove stock option costs, they missed revenue by $60 million or 2%. One of the big factors for the quarter seems to be that they had to Myspace a bunch of cash in Q4 as part of their $900 million ad deal (was triggered by minimum payment clause).

Check out the conference call, they refer to the Myspace (or unnamed partner site, just guessing it's Myspace) payments as something that's probably just a one-time 4th qt event. Hopefully they won't make that mistake again. They're also doing a lot of ad-experiments to figure out what works on social media sites. It's not like search, harder to monetize and will take a bit to nail down.

Google: A Buy On MSFT/YHOO News?

Glad I waited to pull the trigger, was considering buying before earnings. Now Google looks even cheaper. PEG is below 1, that seems crazy.

I'm a search-marketer by trade, so I've seen the difference in how MSFT/YHOO and Google run their operations. There's no comparison. Google has the best platform by far.

Merging YHOO/MSFT ad platforms is gonna be ugly, unless they just decide to scrap Microsoft's.

Say Goodnight as Google Disappoints

They don't issue guidance, who cares if they missed analyst avgs by .02?

I just read over the entire earnings call. Sounds like they had to pay Myspace or another partner site at a loss, because of guaranteed minimum payments written into the contract. They won't make that mistake again, I would imagine.

Still incredible growth and potential in core business, international, mobile, apps for enterprise, etc etc. Microsoft/Yahoo cannot be considered a serious threat until they get their sh$@ together.