Google delivers strong revenue, profits in Q3

Business was good across the board, from core search advertising to emerging areas like display ads and mobile

Google reported strong increases in profit and revenue in the third quarter, during which the company had good results in both its core and emerging businesses.

Google generated total revenue of $7.29 billion in the quarter, ended Sept. 30, 2010, up 23 percent year-on-year. Subtracting commissions and fees it pays to ad network and other partners, revenue was $5.48 billion, $23 million above the consensus expectation of analysts polled by Thomson Financial.

[ Stay ahead of the key tech business news with InfoWorld's Today's Headlines: First Look newsletter. | Read Bill Snyder's Tech's Bottom Line blog for what the key business trends mean to you. ]

Net income grew 32 percent to $2.17 billion from $1.64 billion in 2009's third quarter, while earnings per share rose 31 percent to $6.72 from $5.13. On a pro forma basis, which excludes certain items, net income was $2.46 billion, or $7.64 per share, exceeding the analysts' consensus of $6.67 per share and topping the $1.88 billion, or $5.89 per share, in 2009's third quarter.

"At the highest level, we're very pleased with our Q3 results. It is clear that the digital economy continues to grow rapidly," Google Chief Financial Officer Patrick Pichette said during a conference call.

Google performed very well not only in its core search advertising business but also in newer markets for the company, such as mobile, display advertising and hosted business applications.

"We saw strength in every major product area in Q3," Pichette said.

Demand for search services and advertising continues to rise along with the unabated growth of the Web, said Jonathan Rosenberg, senior vice president of product management. "Search is still at the heart of the Web," he said.

Google is also experiencing momentum in its emerging businesses. For example, Google now has an annual run rate of $2.5 billion in display ad revenue, including banner ads on YouTube, he said.

"Clearly, we're firing on all cylinders in display," Rosenberg said, adding that Google is generating revenue from 2 billion page views per week on YouTube.

In mobile, Google has an annual revenue run rate of $1 billion, he said.

Sites owned by Google generated 67 percent of total revenue, while partner sites generated 30 percent. Google got 52 percent of its revenue from its international businesses.

As of September, the company had cash, cash equivalents and marketable securities worth $33.4 billion.

During the third quarter, Google grew its global staff by 7 percent to 23,331 full-time employees, up from 21,805 in the second quarter.

Google plans to continue hiring aggressively, especially in engineering and sales. "The explosive growth in the digital economy we're experiencing has created a war for talent in our industry," Pichette said.

Continuing to hire talented employees will be key to success. "We've stepped up our hiring machine and are exploring how to attract and retain the best people in this exceptionally competitive environment," he said.

People clicked on Google search ads 16 percent more than in 2009's third quarter. Google generates most of its revenue from so-called PPC (pay-per-click) text ads served along with its search engine results and on partner websites. The cost to advertisers of those Google PPC ads rose 3 percent year-on-year.

Like other online ad sellers, Google is benefitting from a rebound in the market. Online ad revenue in the U.S. increased 11.3 percent to US$12.1 billion during the first six months of the year, compared with the same period in 2009, the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC) reported this week.

If the spending trend continues, online ad revenue could reach its highest annual level in 2010, topping the previous record of $23.4 billion set in 2008, according to the IAB and PwC report.

In 2009, U.S. online advertising revenue shrunk 3 percent to $22.7 billion, as marketers cut down on spending while weathering the economic storm.

Search ads, Google's bread and butter, continue to be by far the most popular online ad format, accounting for 47 percent of spending, followed by display ads, such as banners, with 36 percent.

Copyright © 2010 IDG Communications, Inc.

InfoWorld Technology of the Year Awards 2023. Now open for entries!