Google Bubble
Ok, Google Reported their numbers. Their good, who would have thought, but there is a real problem in the presentation. I first read John’s post about it which links to the press release. The press release is actually a lot less dramatic than the reporting that is out there which speaks about seven fold increases in profit. Come on, that’s a really bad comparison for a company that just started their stuff.
Don’t get me wrong, it’s good, but it has to be at the valuation they are currently at. They went from $342 million to $381.2 Million quarter to quarter. For an additional $194 million in revenue, they added $38.2 million in profit, which is a margin of 20%. Overall their margin last quarter was 24.7%, so it’s decreasing.
Profit Margin Q2: $343 / $1384 = 24.7%
Profit Margin Q3: $381 / $1578 = 24.1%
Next lets look at their network revenue.
Network Margin Q2: ($630 million of revenue — $494 of TAC) / $630 of Rev = 21.59%
Network Margin Q3: ($675 million of revenue — $530 of TAC) / $675 of Rev = 21.48%
Ok, looks like the revenue they make on their network is doing good but their profit is decreasing. Factoring in that they are likely increasing their performance through higher prices in AdWords and higher CTR, they seem to be paying out a lot more money to publishers than before, meaning that it is harder to get the traffic and with Yahoo! and MSN going into the space it won’t get easier. As they don’t talk about operating profit of the network, it might be that they need to add a big sales force too.
Lets look at Revenues. They have a total of $1578, minus their Network Revenue $675 and their own site revenue $885, giving us a left-over of $18 million. In Q2 the same number would be $17 million. If we presume this does not do any profit, in both cases, this leaves the profit of Google’s own sites at:
Q2 Profit Margin on own sites: ($343 — $136) / ($1384 — $630 — $17) = $207 / $737 = 28%
Q3 Profit Margin on own sites: ($381 — $147) / ($1578 — $675 — $18) = $234 / $ 885 = 26.4%
There the margin increases even more, again strange in terms of optimization going on left and right.
So yes, they are growing, but they are just growing because the market is growing and they are the only one now. Their profit margins are decreasing and their growth isn’t that spectacular on a quarter by quarter basis. Looking forward to seeing more and deeper analysis by other people out there.