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Google Q4 earnings plummet, revenue up 18 per cent

Juan Carlos Perez | Jan. 23, 2009
One-time investment write-downs were the primary cause of the earnings drop

MIAMI, 22 JANUARY 2009 - Google's profit took a dive in the fourth quarter, which ended Dec. 31, while revenue grew almost 20 per cent, the company announced Thursday.

One-time investment write-downs were the primary cause of the earnings drop. CEO Eric Schmidt and other executives said during a conference call to discuss the results that the company's performance during the quarter had been strong and that they were satisfied, considering the current global economic problems.

"We had strong search query growth year-on-year, revenues were up in most verticals, and we had tight control of our costs, something which eluded us perhaps in the past, but we got the formula down now," Schmidt said.

Google reported revenue of US$5.70 billion, up 18 percent compared with the $4.83 billion in 2007's fourth quarter. Subtracting the commissions Google pays to its ad network partners, revenue came in at $4.22 billion.

Net income was $382 million, or $1.21 per share, down from the $1.2 billion, or $3.79 per share, recorded in 2007's fourth quarter.

On a pro forma basis, which excludes one-time items, net income was $1.62 billion, or $5.10 per share. This excludes expenses such as stock-based compensation and costs related to the settlement of the copyright infringement lawsuits brought by the Authors Guild and the Association of American Publishers (AAP) over Google's Book Search service. It also excludes charges such as write-offs of $1.09 billion of Google investments primarily in AOL and Clearwire.

Google exceeded the consensus expectation of $4.95 pro forma earnings per share from financial analysts polled by Thomson Financial, as well as their consensus expectation of $4.12 billion in revenue, subtracting ad network partner commissions.

Google executives expressed continued confidence in the company's business model, which relies overwhelmingly on pay-per-click (PPC) text ads delivered along with its search engine results and in Web pages of third-party sites.

This type of ad is the most popular online format, accounting for about 40 percent of online ad spending, and Google has a market share of about 75 percent of search ad spending, according to various industry estimates.

As is customary for Google executives, Schmidt declined to make forecasts, but he expressed optimism that Google will be able to weather the global economic recession, thanks to its business model and to its management strategies in both the short and the long term.

In particular, Google has been reviewing its large roster of products and services to discontinue those that aren't popular. "Our core focus is on the huge, untapped potential of search and ads," Schmidt said.

Google is constantly improving its search systems, and Schmidt hinted that the company is getting more serious about semantic technology. It would allow Google engines to understand the meaning of queries, instead of just analyzing keywords, the basis of its current approach.


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