Original URL: http://www.theregister.co.uk/2009/10/15/google_third_quarter_earnings/

Google says Meltdown's darkest days are over

Chocolate Factory whips out checkbook

By Cade Metz

Posted in Financial News, 15th October 2009 23:17 GMT

Google has decreed that the darkest days of the global economic meltdown are now over.

This afternoon, as the company announced a 7 per cent leap in third-quarter revenues, Google boss Eric Schmidt said: "While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future."

The Chocolate Factory's Q3 revenues reached $5.94 billion, up from $5.54bn in the same quarter last year, while profits climbed to $1.64bn, a 27 per year-on-year leap. But the salient point is that Schmidt and company say they're once again ready to spend the big dollars.

Amidst the meltdown, Google endured one quarter that was less astronomical than what Wall Street has come to expect from the Mountain View search monopoly, but even those Q1 numbers were impressive by ordinary standards. Profits actually rose to $1.42bn.

As the economy shrunk, the Chocolate Factory buoyed its revenues by actively increasing the number of ads showed on its search pages. Google's ad coverage is limited by the keywords advertisers are bidding on and their daily ad budgets. But because Google controls such a large swath of the search market - more than 60 per cent in the US, according to comScore - advertisers are generally willing to pay for as much traffic as Google will give them. Even Google said as much during the meltdown's darkest days.

"Our experience is advertisers are willing to take all the clicks we can give them at the current CPC [cost per click] - even in tough times," Google senior vice president Jonathan "Perfect Ad" Rosenberg said last fall. "We think that will continue to be true because nobody wants to turn away a customer."

During Q1 - a traditionally slow quarter for online advertising - the average number of ads per Google keyword reached a high of 5.25 in February, up from 4.39 in the shopping-obsessed month of December.

The previous year, Google had worked to shrink the number of search ads on its pages. But as co-founder Sergey Brin admitted during a now famous earnings call last summer, the company cranked the dial the other way as the economy waned. More ads mean more clicks, and more clicks (can) mean more money.

This ad-crank continued on into Q3 of this year, judging from the latest numbers from independent search ad watcher AdGooRoo. Clearly, as the economy shrunk, Google was battling a consumer tendency to shop for less stuff - this can mean fewer clicks - and it would seem the trend has reversed.

Google says paid clicks - clicks on ads served on Google sites and its partners sites - rose 4 per cent from the Q2 and 14 per cent from the same quarter last year.

And so, Google is willing to spend "heavily" again. As the economy shriveled, Google also tightened its proverbial belt, shutting down various services and even axing some staff.

"We're going to continue to invest in long-term growth," Schmidt said during a conference call this afternoon with analysts and reporters. "We really tested our management team, and I want to say I'm very proud of the management team getting us through what could have been a very significant [problem] for Google."

Eric Schmidt did not acknowledge that extended crank of the Google ad dial. But he did cite "tight control over costs combined with continued innovation in search ads."

But that tight control is no more. "We have huge opportunities ahead of us, and we have the resources and expertise to invest heavily in long term growth for the benefit of users, customers, and sharesholders," Schmidt said. He added the company intends to invest in new employees - "we're already stepping up our hiring" - and what Schmidt likes to call "innovation." ®