Search, Ads And Apps: The Google Q3 2007 Results

Google’s combo of search, ads & apps gave it a very strong Q3. Here’s the top-line from the press release: Google reported revenues of $4.23 billion for the quarter ended September 30, 2007, an increase of 57% compared to the third quarter of 2006 and an increase of 9% compared to the second quarter of 2007. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the third quarter of 2007, TAC totaled $1.22 billion, or 29% of advertising revenues.

For the nine months ended September 30, Google had revenues of $11.8 billion, compared with $7.4 billion a year ago. There’s a great deal more detail in the release. Below I offer some color from the earnings call.

The following comments and quotes are excerpts from the earnings call earlier today. The statements are either verbatim quotes or a very close paraphrase. I haven’t included everything that was discussed. The material is organized by topic and not presented in chronological order of the analyst questions or Google responses: General financial performance:

CEO Eric Schmidt expressed satisfaction with Q3 results in view of traditional “seasonal weakness.” He emphasized that search quality efforts were especially paying off with increased international monetization.

Outgoing CFO George Reyes: We had year over year growth of 68% in revenues. There’s been lots of international growth (EU, Asia and Latin America). There will be continuing pressure on TAC rates going forward. There will be increased cost of revenues and cost of sales. Operating expenses will increase as we grow the global infrastructure. Google ad programs generally:

Co-founder Sergey Brin: We’re very happy with our partnership with MySpace. Social networks are going to require different types of advertising and different types of targeting.

Jonathan Rosenberg, SVP, Product Management: Google Gadget Ads are better than traditional online display ads because you can get people to engage with the brand; you can empirically measure the level of engagement.

(re TV ads): This is one of the few places where you can bring Internet level accountability to offline advertising. The set-top box offers the same level of granularity to the offline TV ad that you get from online.

Our ad quality efforts focused on eliminating bad ads.

This quarter we’ve been experimenting with previous query ad targeting (i.e., behavioral targeting)

YouTube:

Brin (re overlay ads on YouTube): We’re getting better clicks and user response rates than anticipated.

Co-founder Larry Page: Monetizing YouTube is not our top priority; we continue to make improvements in the user experience.

Universal Search:

Rosenberg: We’re very pleased with Universal Search. We’ve received very favorable feedback from users. There have been good click-through rates on different data sets. Mobile:

Schmidt: Mobile searches are growing rapidly. They’re a small percentage of total searches – something of great frustration to us.

We’re happy with our mobile applications strategy. By some measures we’re the leading mobile applications provider. We want to make sure that Google is part of every one of the mobile platforms out there.

Page: (re the 700MHZ spectrum auction): We’re very happy with the openness provisions that have been put into the auctions [by the FCC]. We have many different options available to us as a company. The money isn’t burning a hole in our pocket, so we have no need to bid to win [spectrum licenses].

Our mobile search traffic has increased domestically and internationally, especially maps. Mobile ads are doing well, especially in Japan and Korea.

Ask.com renewal:

Omid Kordestani, Senior Vice President, Global Sales & Business Development: We want to preserve relationships with our partners including Ask.

Google Apps and cloud computing:

Schmidt: We’re on the cusp of a world where anyone can create, share and save content in the cloud.

DoubleClick:

Schmidt: We’re quite optimistic. We believe it will result in a good outcome.

Related Topics: Channel: Industry | Google: Business Issues

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About The Author: is a Contributing Editor at Search Engine Land. He writes a personal blog Screenwerk, about SoLoMo issues and connecting the dots between online and offline. He also posts at Internet2Go, which is focused on the mobile Internet. Follow him @gsterling.

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