Wall Street frowns on ginormous Google profits

Sergey grabs the knob

By Cade Metz in San Francisco • Get more from this author

Posted in Financial News, 17th July 2008 23:57 GMT

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Google's ginormous second quarter profits didn't quite match Wall Street expectations, driving share prices down as much as 7 per cent in after hours trading. But it sounds like Sergey Brin will soon crank that big dial on the company's secret money machine, making everything A-OK in Q3.

In Q2, the world's largest ad broker nabbed revenues of $5.37bn, a 39 per cent leap from the same quarter last year and 3 per cent climb from Q1. "We're obviously very pleased with what we believe are good results in one of the weaker quarters in our normal yearly cycle," CEO Eric Schmidt said, during a conference call with reporters and industry analysts - in his usual haughty monotone. "Traffic and revenue was strong across all regions and verticals...despite uncertain economic conditions."

Meanwhile, profits hit $1.25bn. That's a 35 per cent jump from the same quarter last year, but it's a slight dip from Q1 - and it wasn't enough to satisfy the financial guess men. Google delivered $4.63 a share in earnings, and all those dart-tossing Wall Streeters predicted $4.74.

Lameduck CFO George Reyes indicated that some dollars were lost because of Google's "continued focus on delivering high quality traffic to advertisers." Paid click rate continues to decelerate, but Google has always said this is part of a grand scheme to improve the "relevance" of its online ads. In Q2, total paid clicks - across Google-owned sites as well as its content network - grew 19 per cent from last year, but they dropped slightly from Q1.

At the same time, the company says, ad "coverage" has dropped over the last few quarters, meaning fewer and fewer ads are being shown. "This is our continued focus on quality, and I don't see that changing significantly," said senior vice president for product management Jonathan Rosenberg. "[Co-founder] Larry [Page] often says we'd be better off showing just one ad [per page] - the perfect ad."

But Rosenberg was quickly contradicted by Sergey Brin, co-founder number two. "There is some evidence that we've been a little bit more aggressive in decreasing coverage than we ought to have been," Brin said. "We've been reexamining some of that."

Of course, like Rosenberg, Brin said he's merely interested in keeping web users satisfied. "Our ads are an important addition, quality wise, to our pages. They're a very important source of information." But we all know that Google is long way from displaying nothing but "relevant" ads on every page. We all know that more coverage means more money. And you can bet that next quarter, Sergey will make sure those Wall Street guess men get exactly what they want. ®

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