Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Google Makes It Up in Volume

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Don't let anybody kid you into thinking that Google (Nasdaq: GOOG  ) is immune to the advertising market's meltdown. It just has a better way of overcompensating.

The average cost for an advertiser to receive a lead through Google fell by a sharp 13% in the second quarter, relative to what sponsors were willing to pay a year ago. The upside here is that Google was able to deliver 15% more clicks than it did a year ago.

Net revenue, after subtracting traffic acquisition costs from gross revenue, rose by 4% to $4.06 billion. This is the second straight quarter of sequential declines in net revenue for Big G.

Things look better on the bottom line, though, as Google's margin-widening ways have non-GAAP earnings climbing by 16% to $5.36 a share. Analysts were banking on a profit of just $5.09 a share.

Beyond the sequential top-line dip and the plunge in click costs, the only other problematic nugget in the report rests in the amount that Google is paying its AdSense members.

Third-party publishers generated $1.68 billion in gross revenue for Google, as a result of syndicating the search giant's contextual marketing ads across their sites, blogs, and YouTube clips. Google paid them $1.24 billion for their efforts, or nearly 74% of the gross revenue that AdSense publishers delivered to Google. That's a generous figure, sure, but the payouts have been higher -- between 75% and 79% -- in the past.

Holding back will fatten Google's coffers, but it also risks alienating Google's publishers.

Not that Google has to worry about that right now. There isn't anything close to AdSense in monetizing sites that thrive from targeted text ads, largely because Google is the Internet's largest advertiser. Yahoo! (Nasdaq: YHOO  ) has an AdSense clone, but it hasn't been a factor for years.  

Watch out for Microsoft (Nasdaq: MSFT  ) , though. It has never offered a paid-search syndication platform for small and medium publishers, and now it has the perfect search engine to make such a thing happen. If Microsoft has dreams of replacing "Ads by Google" ad blocks with third-party sites displaying "Ads by Bing," its timing couldn't be better.

This doesn't mean Google investors should be quivering with fears of vulnerability. Google remains the top dog, and paid search is clearly holding up better than the display-advertising strongholds that define Yahoo! and ValueClick (Nasdaq: VCLK  ) . It also has a fat $19.3 billion in cash and short-term investments sitting on its balance sheet, so if it needs to buy itself out of trouble, it will.

Google isn't the speedster it used to be, though. It's not growing as quickly as market leader Baidu (Nasdaq: BIDU  ) is in China, and what if that 13% plunge in winning keyword prices is more than just a recessionary blip? What if sponsors have learned to bid smarter, or if the ads are just losing their effectiveness at the higher rates of yesteryear?

Google is still the class of online advertising, but it has some homework to do.

Read up on Google:

Baidu and Google are Motley Fool Rule Breakers picks. Microsoft is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz still uses Google a lot in his daily life. He owns no shares in any of the companies in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 30, 2009, at 2:23 PM, rfaramir wrote:

    Rick, you're contradicting yourself here: "Net revenue, after subtracting traffic acquisition costs from gross revenue, rose by 4% to $4.06 billion. This is the second straight quarter of sequential declines in net revenue for Big G."

    You can't have a "second straight quarter of sequential declines" if it rose.

    Maybe you meant the rise was smaller than the previous rise, and that it happened two quarters in a row (I haven't looked myself)? Or maybe it was a year-over-year rise, but two sequential quarterly declines? Or maybe you are talking about two different things (e.g., gross decline with net rise). But you can't mean what you said.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 943726, ~/Articles/ArticleHandler.aspx, 10/26/2016 3:18:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,203.51 34.24 0.19%
S&P 500 2,138.24 -4.92 -0.23%
NASD 5,250.58 -32.82 -0.62%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 3:02 PM
GOOGL $820.01 Down -8.54 -1.03%
Alphabet (A shares… CAPS Rating: *****
BIDU $172.46 Down -4.23 -2.39%
Baidu CAPS Rating: *****
CNVR.DL $0.00 Down +0.00 +0.00%
Conversant CAPS Rating: *****
MSFT $60.67 Down -0.32 -0.52%
Microsoft CAPS Rating: ****
YHOO $42.09 Down -0.46 -1.08%
Yahoo CAPS Rating: **