Google’s (GOOG) good earnings news is an indicator of something, but just what?
On October 15, after the market close,  Google reported earnings of $5.89 a share, 47 cents a share above the consensus estimate of $5.42. Revenue, after traffic acquisition costs, climbed 8.4% from the third quarter of 2008. That was about $160 million ahead of the Wall Street consensus of $4.24 billion.
But what do the numbers mean?
I know it’s commonplace to put Google in the technology sector–I do it myself–but despite its huge technology footprint the company’s revenue still mostly comes from advertising.
So first, Google’s good news is good news for the ad sector–at least for the online ad sector. Aggregate paid clicks grew by 14% from the third quarter of 2008. That was a percentage point less than Wall Street had forecast, but still represents very healthy growth.
For Google and maybe for the economy as a whole. Unless, of course, Google is getting its growth by taking ad share from more traditional media plays. Investors will get a sense of that when The New York Times (NYT) reports on October 22.Â
In 2009, according to Magna Global, search advertising as a whole will grow 3.6% in the United States while ad spending as a whole falls 15%.
Second, Google’s good news is definitely good news for the technology sector–even if not in the way that most investors think. The company was encouraged enough by what it saw in its business this quarter to say that it believes the worst of the recession is over. And that means that the company now feels “confident about investing heavily in our future,” CEO Eric Schmidt said.
That’s good news for the technology companies that would sell stuff to an expanding Google. That would reverse the cuts in capital spending that Google made as the recession deepened. The company’s capital spending fell to $186 million in the third quarter from $452 million in the third quarter of 2008.
And third, Google’s good news is good news for technology startups. CEO Schmidt said that Google is back on the acquisition trail, looking for small companies that will add to its dominance of the Internet search market or build off that to move the company into new products. That should help startups do everything from raise initial cash to go public.
In the quarter Google increased its market share, in spite of the launch of a new search engine, Bing,by Microsoft (MSFT).  (I added Microsoft to Jubak’s Picks on July 24. For the original logic behind that pick see my post https://jubakpicks.com/2009/07/24/buy-microsoft-msft-this-is-as-bad-as-it-gets/ ) Google took  64.9% of the search market in September, according to ComScore, up from 65% in May. Microsoft’s share grew to 9.4% from 8% and Yahoo’s (YHOO) share fell to 18.8% from 20.1% over that period.
Bluesbagger: the numbers are correct, just not the “up from” Comscore reports Google’s share of searches as the following:
Mar-09 63.7
Apr-09 64.2
May-09 65.0
Jun-09 65.0
Jul-09 64.7
Aug-09 64.6
Sep-09 64.9
Draco97: One potential threat to watch out for with Amazon is going to be Wal-mart. They are looking to increase their online exposure and are moving to be more of a direct competitor.
Jim makes a good point about the best technology not always winning. Ironically, MSFT is a prime example of this and would it not be poetic justice if BING actually WAS better than Google but never got any traction? BING isn’t better in my experience and MSFT as usual got greedy and annoys people by constantly hilighting their own sites. They are so clumsy and have such a bad reputation for being dull, cludgey, and greedy that I wonder if they can ever breakout again.
Google without any question still provides a superior search engine. Bells and whistles do not make relevant links in and of themselves, and Google still far surpases all other engines in providing immediately accessible relevant links to search queries.
I am positive there is a better search engine than what Google provides today, but it hasn’t been invented yet. When it is I’ll invest in that company, but for now Google is the one.
In fact, when I try to google something on my MSN homepage, Bing always tries to steal the search-
-which infuriates me because I then have to retype my search in the google box.
So I never use Bing. (Dumb name too…)
The real point, as mentioned, is google has constantly stayed ahead, the rest have either tried to slide or are trying to wedge in, and are thus all behind.
when looking for something special , I use both google and yahoo as they make reference to different sites which are often complementary.
Regarding Amazon, they have, in France, a local competitor which is more interesting for French books particularly.
I agree with the majority on this one. There are a number of “Web” companies that just get it. They constantly are improving and expanding themselves, and Google is certainly one of them. I disagree that the searches are all the same, as with all the others (including Bing) the searches often contain a number of irrelevant sites that I suspect have paid to be in my main search list. The main reason Bing has gained market share is that is being forced on many people based on what there home page. Talking to many people at work, however, demonstated that most, like me, would rather click on Google as a favorite link and then search with a tried and trusted engine than use one of the others.
One a similar note, one other company that is similar to Google and that noone is even close to threatening is Amazon. Again, they just “get it”, the free shipping Amazon Prime has resulted in us at least checking Amazon’s price for most things on the Web (even things like razorblades, etc), and they are frequently either cheaper, or so much less expensive that the free 2 day shipping makes up for the small increased price. These two companies have become name brands that are not comfortable just sitting on their laurels, but are always inventing new ways to make our lives easier, and in return, make a few dollars for themselves.
AJ makes a good point, in that Google has been very proactive in developing or acquiring cutting edge technologies. Everyone I talk to seems to have the same experience I do whenever Google rolls out something new: it seems like their stuff is 3-4 years ahead technologically compared to everyone else. Ask anyone about the first time they saw Google Earth, or Google Maps, or City View, or even the very first time they used Google’s search engine after years of struggling with the (very poor) other engines. It’s rapidly getting to a point where they have a name and reputation that people trust, very much like Apple. That makes a difference when people are asked to make a conscious choice between their product and someone like Microsoft, which has a pretty poor reputation by this point. The key there is “conscious choice”, and I think Microsoft is banking on their usual strategy of leveraging the ubiquity of their operating system to get people to accept Bing by default. Much will depend on whether people find Bing to be inoffensive enough to stick with, or if it’s enough worse than the competition to cause them to actually switch back to Google.
google is the best search engine. bing, msn and yahoo are all behind the race. When they will catch up, google will be on some thing else.
“Google took 64.9% of the search market in September, according to ComScore, up from 65% in May. ”
Does anyone know what the Google numbers actually are? One (or I guess it’s possible that both) is incorrect.
At some point in the life of a market it no longer matters what technology is superior. The simple mass of users makes it an entrenched standard and it’s almost impossible to dynamite users to another alternative. Teh QWERTY keyboard for example isn’t the most efficient layout ever invented but it’s the one we all use because we all use it. Economists call this increasing returns with size. Don’t know if Google’s that sticky since it is relatively easy to switch from one search engine to another and it’s not that hard to learn a new interface. But why bother? Do I know that Google is superior to Bing? No. Will I try Bing? Probably not.
ndspace: I agree with you that Google is not only about search engine, but from my personal experience, I just noticed recently that I do not pay attention to all these ad’s on the web page and consider them more like a fancy frame. Moreover, if ads are really annoying, I just stop visiting that particular web page.
I am sure that someone will come up with a smart software to make all these ads invisible while surfing the web.
If you are wondering about “the google thing”, check out this link:
http://www.google.com/intl/en/options/
Google is not just about search. Besides the search engine, YouTube, Google News, Google Books, etc. drive immense amount of traffic to google and keep users engaged on web pages that represent real estate for google’s ad network. No one is even close to replicating their offering.
There was a time when all the search engines were equally terrible, and Google did come in and did introduce a better search engine, and people started to use it. Over the years I do believe that all the search engines have improved to the point that no matter which one I use I get about the same results (not perfect just about the same). And I can’t understand why Microsoft says Bing is “visual” and better, I see little difference. Any way the big thing to remember here isn’t the technology, it is how they make money. The do it by getting people to click on ads. Now even if everything is equal technology wise if your search engine is used by more people and there is no real reason for people to change, you win. Google has this. So the compedtors have to come up with something that is so much better then Google they will all change over. Microsoft actually has the best chance at that because people are lazy and if their new Windows 7 machine comes with IE 8 setup for Bing by default, they might stay with it. I actually did, just because I tried them both and didn’t see much different and I jump between them. But then again I almost never click on any of the ads.
I agree with vivvi. Like my son says, “google this !”.
I do not understand this Google “thing”, to be completely honest. I recently removed Google search engine from my browser, just because I just did not like what it was offering. Yahoo!, ICQ or MSN they all use the same algorithm and, what I recently found, are actually better suited for my purpose than Google.