Google Q2-2006 sequential growth slows down to single-digit
Google just reported their Q2-2006 earnings, and their sequential growth is just 9% over Q1-2006 (the wallstreet whisper number was 10%). This confirms that the search slowdown is industry wide. Note that almost half of that gain in revenue for Google is not natural growth, its one-time growth coming from more ads placed on top of the natural web results (specifically the state where they have 3 ads, e.g. the flowers query).
So for Q3 over Q2 their sequential growth will be even lower than 9%, except if they increase their ads significantly and go to 4 ads above web results (like what yahoo does), and/or start placing ads at the bottom of the page (not just above and to the right). However, we now have to wait and see whether wallstreet will get tricked into believing this 9% growth is natural and sustained, the stock price tomorrow will tell us that. Wallstreet got tricked before, and then it bit them back for Q4-2005 once the revenue accelerating changes caught up and only the natural growth remained.
Unlike Yahoo, Google does not give forward revenue guidance, but if they did, I bet they would be revising the numbers down a bit just like yahoo did.
Cheers,
– amr
PS: Many of us at Yahoo are sad at how severley wallstreet punished our stock, -20%, but we are hanging in there. Our executive management team choose to focus on the long term, and not try to rush things on the Panama front given how much of our long term value is tied to the new platform, they want the Panama launch to be perfect. I am proud to work at a company with that style of leadership, and I back them up 100%.
Amr,
Comment by David Jackson — July 20, 2006 @ 12:59 pmI’d love to publish this post on seeking alpha. Could you email me asap to let me know if that’s ok? It will contain a link to your blog in the first line.
David
But Amr, the issue is not that search is slowing down. It is that Google has a bag of tricks in the form of an algorithm that allows them to tweak it to optimize monetization. Last year everyone thought GOOG would have a tough Q3 and then they blew everyone out of the water by tweaking the algoritm. Who is to say they don’t have the same type of opportunity for this Q3? More than a 4th link, opportunities like more text, like better geographic targetting, etc. etc. The relevancy based algorithm can keep being tweaked. Meanwhile, Yahoo is stuck with systems that can’t generate the same type of per search monetization improvement.
Please tell me if you disagree… is Google out of tricks? Does Yahoo have tricks we haven’t seen yet?
Comment by Bill — July 20, 2006 @ 2:25 pmyou guys are just lazy and lack passion unlike those googler who will work all day and night. you just care about money. the delay of yahoo’s Panama project is worse than Microsoft delay of Vista. Yahoo does not have monopoly. Each quarter’s delay means more migration to Google. i know you are all hoping that microsoft would buy Yahoo at a big fat premium so you can all bail out.
Comment by john — July 20, 2006 @ 3:47 pmIf the employees like you, stopped the 24×7 missile-watch
Comment by Kramer — July 20, 2006 @ 6:40 pmon Google, productivity and the quality would increase, to
not just copycat them, but listen to your customer and
predict the next wave.
So lets see if I have this straight. By your estimation Google made 4 significant shanges in the quarter that could impact revenue. You thought one would help (the third link), two would hurt (kudos for Google remember) and one you weren’t sure about. You also thought the expectations were very high with the whisper at 10% q/q. They turn in “just 9%” growth and you think this confirms there is an industrywide slow down in search. Huh?
Comment by wireless — July 21, 2006 @ 1:33 pmHi Amr,
I look forward to your estimates and commentary each quarter. I certainly think Yahoo has a lot to offer and is a much more diverse set of income streams.
It pains me to see such big movement on the Yahoo stock front as it assumes a much bigger reliance on search than I would think was warranted.
Comment by wioota — July 21, 2006 @ 10:54 pmGreat post Amr. Confidence is key
Comment by John Furrier — July 22, 2006 @ 8:26 pmA few points that struck me as incorrect here:
= The q4/2005 results missed (allegedly) because of miscalculation of tax rates for the year. Based on my reading of the numbers for that quarter, this was in fact the case.
= Hasn’t Google had three ads on top for some time now?
http://blog.searchenginewatch.com/blog/050415-053053 seems to indicate it’s been the case since April 15th of last year at least.
Have they increased in frequency? I do a lot of Google searches in the course of my day, but I haven’t noticed this happening any more than usual.
It does seem like that both Google and Yahoo (and I guess MSFT.. does anyone here use AdCenter?) are continually doing things to improve ctr.
It strike me as pretty odd to dismiss these things as “one time” though. The way I see it, for a search company, your search revenue is something like:
R = (Avg clickthrough rate) * (number of searches)
In this case, it’s clear where algorithmic improvements sit. There’s obviously an upper bound here, but it’s pretty odd to dismiss these as “one time” things, any more than saying, “They improved the number of searches by 5%, it’s a one time improvement.”
Speaking of this though, it would be a remarkable step for transparency if both Google and Yahoo announced the true number of searches on their main property per day. All we as investors have is metrics from people like ComScore and Hitwise, which people at Yahoo (and Google) continue to state are inaccurate. If they are inaccurate, stop hiding this number and let us objectively judge whose shares of the market is really improving.
The golden number I want as an investor is “revenue/search”, and I haven’t seen a reputable source for this number anywhere.
= Yahoo being punished by the market
It’s hard to be optimistic about Yahoo at this point. “We’re in this for the long haul” is the language we heard around the much-delayed Vista launch. I actually agree that getting it right is, well, the right thing, but it doesn’t change the fact that your company is about a year behind its nearest competitor. Yahoo market share and revenue growth continue to seem a lot more flat than Google’s in the near-mid term. What is there for us as users and share owners to get excited about?
If the Yahoo ad algorithms outperform Google then I think you will have been vindicated, but in the interim, you should expect to be tarred with the Vista brush of not being able to execute on your promises.
Comment by Barry — July 23, 2006 @ 1:12 am