Google Inc trounced expectations again in its latest financial quarter, breezing through the summer months, historically slow for internet companies, with no apparent sluggishness.
The company brought home $381.2m of profit for the three months to September 30, compared to $52m a year earlier, when it recorded a $201m legal settlement charge, on revenue that was up 96% on last year at $1.58bn.
Google revealed its non-GAAP pro forma numbers, which exclude certain expenses, for the first time, in a rare nod to Wall Street norms designed to help out analysts used to dealing with operating metrics.
On that basis, the company said its earnings per share in the third quarter was $1.51. That cleared the Thomson First Call analyst consensus by 15 cents, and topped the highest analyst estimate by 5 cents.
Not bad for a company that makes its money selling online advertising mainly in the northern hemisphere, where the summer months usually see more users turning off their computers in favor of more outdoorsy pursuits.
Google still doesn’t give guidance on future performance, so it’s always difficult to say whether it consistently beats estimates because it over-performs or because the people making the estimates just don’t get enough data to construct their financial models.
Company executives suggested that the introduction of several new products during the quarter, along with improvements to its advertising service, may have driven traffic and revenue.
This year’s Q3 revenues came in stronger that we expected, due primarily to product improvements, CFO George Reyes said in a conference call after the results we announced.
During the quarter, the company introduced a WiFi VPN offering, an instant messaging client, a new version of its desktop search software, and Google Earth.
It has been difficult for us to forecast the rate of product innovation, Reyes warned. Many of our product improvements are designed to improve the user experience and may not be accretive to revenue in the short term.
The bottom line was helped out by the company seeing relatively more paid clicks through its own network of sites compared to those clicks that come through its partners, where it has to split the revenue.
TAC, traffic acquisition costs, is the amount of revenue given to these partners. It was 34% of ad revenues in the quarter, compared to 36.1% in the second quarter this year. Excluding TAC, revenue more than doubled year-on-year to $1.05bn.
What we’re seeing now, and rather precipitously this [third] quarter, is really robust 20% [sequential] growth with relatively modest 7% growth in the partner network, Reyes said. The driver is the rate at which the partner network is growing.
He said that 56% of revenue came from Google’s own web sites in the quarter, compared to 53% in the second quarter. Partner ad revenue amounted for 43% versus 46%. The remaining revenue came from non-advertising products.
As is usual, the company declined to provide any information about its future product plans. But chief executive Eric Schmidt rather disingenuously claimed that Google is not in the habit of launching the same products as its competitors.
Executives also declined to provide business model information about services the company is already known to be planning, such as the proposed free WiFi network the company wants to build in San Francisco.
The San Francisco WiFi is an experiment to see how we can provide new services and localized software and things like that in an environment where people have really good access to the internet, president Larry Page said.
Google faces competition from a dozen or so other companies for this deal with San Francisco’s local government, but is thought to be the front-runner, given that it already offers a couple of hot-spots in the city.