Google reported its first set of quarterly financial results since going public yesterday. The company impressed with big numbers and growth, and expounded more on its develop-first monetize-later attitude to new products.
For the three months to September 30 the firm reported a GAAP net income up 154% at $52 million on revenue up 105% at $805.9 million. Excluding a $201 million charge to settle litigation with Yahoo!, related tax benefits and other charges, the net income would have been $125 million.
Almost all of Google’s revenue comes from advertising placed on Google’s websites and sites owned by partners ranging from big portal companies such as Ask Jeeves to small-time technology bloggers.
Google said that 51% of its revenue in the third quarter was generated by Google-owned sites, with 48% coming from Google Network partners. Google revenue was up 99%, while partner-sourced revenue was up 120%.
The company pays its partners a slice of the clickthrough fee when users click on ads. These so-called traffic acquisition costs (TAC) were $302.9 million or 79% of the revenue the Google Network brought in, down from 82% a year ago.
Asked to comment on the health of the overall online advertising industry, CEO Eric Schmidt declined to speculate, and said that Google’s advertising customers tend to think of search-based ads as not a marketing expense, it’s a cost-of-sales expense.
In a conference call with analysts after the announcement, Schmidt thanked investors for sticking with what he called an unconventional company in many ways, but there were few surprises in the following discussion.
One notable line item, stock based compensation, is not often seen in tech companies’ earnings reports. Unlike most of the industry, Google expenses the non-cash cost of giving stock options to employees. This number was down about 8% at $67.9 million.
Schmidt also said something you rarely hear from public companies – that the company develops products first and thinks about how it can monetize them later. He claimed Google does not yet have a plan for getting revenue from Google Desktop.
As they become more and more successful, we look for opportunities to monetize, monetization comes after the product has become a user success, Mr Schmidt said. We deal with that question as it emerges.
He also disputed the view that Google – which has launched channels focusing on shopping, news, groups and images – is becoming a portal. He said the firm explicitly [is] not planning a travel tab or a Google browser.
There had been some speculation in recent weeks that Google is quietly building a web browser to compete with Internet Explorer (it owns the domain gbrowser.com), and an instant messaging client.
The earnings call was otherwise very conventional. Mr Schmidt asked analysts to stick to just one question, and most of the analysts ignored him. Analysts asked for undisclosed numbers to help them better build their models. Executives declined to provide them.