Google Earnings Top $5.37 Billion in Revenue Q2 2008

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Google revenues topped $5.37 billion for the quarter ended June 30, 2008, an increase of 39 percent compared to the second quarter of 2007. That's also an increase of 3 percent compared to the first quarter of 2008.

But those numbers still disappointed investors who basked in the glow of Google's growth and perhaps lingered a little too long in the sun.

The big news? Weakness in key sectors such as real estate, where paid search has proven resilient in the face of the recession. As SEW readers know, Auto finance average CPC was down in June; as was the total Finance category.

Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the second quarter of 2008, TAC totaled $1.47 billion, or 28 percent of advertising revenues.

"Strong international growth as well as sustained traffic increases on Google's web properties propelled us to another strong quarter, despite a more challenging economic environment," said Eric Schmidt, CEO of Google, in a statement. "As we continue to focus on innovating in our core business of search, ads and apps, we also look forward to enhancing the experience of our users and expanding the reach of our advertisers and partners with new technologies and formats, particularly as our integration of DoubleClick gains momentum and creates new opportunities in display advertising and elsewhere."

Highlights of the 2nd Quarter:

Google Sites Revenues - Google-owned sites generated revenues of $3.53 billion, or 66% of total revenues, in the second quarter of 2008. This represents a 42% increase over second quarter 2007 revenues of $2.49 billion and a 4% increase over first quarter 2008 revenues of $3.40 billion. Google Network Revenues - Google's partner sites generated revenues, through AdSense programs, of $1.66 billion, or 31% of total revenues, in the second quarter of 2008. This represents a 22% increase over network revenues of $1.35 billion generated in the second quarter of 2007 and a 2% decrease over first quarter 2008 revenues of $1.69 billion. International Revenues - Revenues from outside of the United States totaled $2.80 billion, representing 52% of total revenues in the second quarter of 2008, compared to 48% in the second quarter of 2007 and 51% in the first quarter of 2008. Had foreign exchange rates remained constant from the first quarter of 2008 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $88 million lower. Had foreign exchange rates remained constant from the second quarter of 2007 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $249 million lower. Revenues from the United Kingdom totaled $774 million, representing 14% of revenue in the second quarter of 2008, compared to 15% in the second quarter of 2007 and 15% in the first quarter of 2008. Paid Clicks - Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 19% over the second quarter of 2007 and decreased approximately 1% over the first quarter of 2008.

The growth of paid clicks year-over-year is good news, showing the strength of the paid search marketplace. As Google has stated previously, the company has made an effort to improve the quality of clicks rather than increasing click volume. AdWords and AdSense were down sequentially, due to quality control and seasonality.

Google acknowledged the weakness of key sectors (Autos, Finance, Real Estate) that have wreaked havoc with display advertising. Real estate sector for paid search and contextual ads is down year-over-year. Auto ad spend is up year-over-year, but not consumer financing.

Ad Sense partners may have felt the squeeze too. Traffic Acquisition Costs (TAC), the portion of revenues shared with Google's partners, decreased to $1.47 billion in the second quarter of 2008. This compares to TAC of $1.49 billion in the first quarter of 2008. TAC as a percentage of advertising revenues was 28% in the second quarter, compared to 29% in the first quarter of 2008.

The majority of TAC expense is related to amounts ultimately paid to Google's AdSense partners, which totaled $1.32 billion in the second quarter of 2008. (TAC is also related to amounts ultimately paid to certain Google distribution partners and others who direct traffic to Google's website, which totaled $154 million in the second quarter of 2008.)

About the author

Kevin Heisler, formerly the executive editor of Search Engine Watch, is a search and advertising industry veteran. His former roles include VP, strategic accounts for integrated digital marketing firm 360i; director of business development for Didit Search Marketing; and search industry analyst at Jupiter Research.

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