My Prediction for Google Q3 2006 revenues …
Analysts are expecting something in the range of 6 to 9% sequential quarterly revenue growth, not gonna happen, well barely, here is why:
Comscore is saying that Google organic search pageview volume is flat to down from Q2 to Q3.
Google did not launch any significant revenue boosters. I previously commented on the main changes I saw, and the only one that might boost revenue is the SERP change for domain searches, but that change happened during the last month of the quarter and I do not expect it to make more than a couple of %. The other two changes were negative, not positive, as far as revenue is concerned (they were positive for user experience)
Some folks pointed out to another change that Google did in July, they changed their quality scoring formula and hence essentially started charging more, and increased the minimum bid price for many keywords. These kind of changes lead to immediate revenue boost, but then advertisers quickly adjust their bids to maintain their ROI, or withdraw from bidding on that term completely. Though I am not sure, I think that Google did lose a significant number of listings (and hence coverage and depth) due to this change.
That said, it does also seem that Google increased the number of pages for which they show three ads above the search results, that certainly leads to more money.
I predict that Google will come in at the low side of estimates, if not miss them completely (i.e. 5% or less). However, I am not confident enough to bet my money on it, as comscore data was flaky last quarter (they predicted 20% sequential organic search volume increase for Google’s Q2 over Q1).
– amr
Hi Amr -
Right or wrong I give you major props for these earnings predictions which are fun….and sometimes educational!
Comment by Joseph Hunkins — October 19, 2006 @ 10:40 amWow — you really missed it, not even close.
Comment by BB — October 19, 2006 @ 12:07 pmWell I did say I am not confident enough to put my money on it, 10% sequential revenue growth is insane, I have to say that I am dumbfounded (however, why did they say 10% sequential revenue growth when their Q2 revenue was $2.46B and Q3 is $2.69B, isnt that 9%?).
Either Comscore is really off (and Google gained a ton of search pageviews in Q3), or Google raised their CTR/CPCs way up, but this is indeed amazing performance for a slow summer quarter.
The increase is mainly coming from Google Sites at 14% sequential increase, the google network (which includes both search on other sites, and adsense ads on other sites) was up just 4%.
Also international was very strong at around 12.72% (after you factor out the currency rate benefits).
– amr
Comment by amr — October 19, 2006 @ 1:09 pmIf you’re only going off comScore search view numbers, that could be part of the problem. We have no idea how much of Google’s income comes off contextual placement, since they never report that. But it’s got to be a big chunk. For all we know, they’ve added a ton of new page views in contextual, driving up revenues. The search figures alone don’t tell you what’s happening with contextual.
The best guide to this (best, not great), is to look at the Google Site Revenues figure versus Google Network Revenues. They were:
Google Sites Revenues - Google-owned sites generated revenues of $1.63 billion, or 60% of total revenues, in the third quarter of 2006. This represents an 84% increase over third quarter 2005 revenues of $885 million and a 14% increase over second quarter 2006 revenues of $1.43 billion.
Google Network Revenues - Google’s partner sites generated revenues, through AdSense programs, of $1.04 billion, or 39% of total revenues, in the third quarter of 2006. This is a 54% increase over network revenues of $675 million generated in the third quarter of 2005 and a 4% increase over second quarter 2006 revenues of $997 million.
Both groupings have both search and contextual in them. My feeling has been that the Google Network Revenues are probably heavier in terms of contextual ads. But that’s a gut feeling and could be way, way off.
If you roll with that, then it still doesn’t explain you being off. Network only grew 4 percent. But it could be that within the Google Network, they’re doing more placement contexually on Google properties that won’t show up in the comScore figures and simply might not be noticeable. For example, three paid links in Google Groups. New? Old? Heck, I don’t know offhand — and it would be easy to miss all the places Google might be inserting paid links contextually.
It can also be easy to miss search related placements. For example, I think Google’s ramped up paid links in local. That’s not a main SERP thing, but it could have an impact.
Anyway, like Joseph, guts for going out on the limb
Comment by Danny Sullivan — October 19, 2006 @ 2:44 pmAnd oops, flew right past you pointing out the Google Sites vs Google Network revenues yourself. It could be again that the Google Sites have a lot more contextual placement out there that’s having an impact.
Comment by Danny Sullivan — October 19, 2006 @ 2:46 pmDanny nice comments (as usual!). I’m really surprised by the lowering of the percentage of revenue from the network sites. It’s almost like Google really is taking over the world.
Comment by Joe Hunkins — October 19, 2006 @ 6:24 pmDanny,
Nice to see you commenting here
I dont think Google makes much from adsense on their sites, not enough to explain such a strong performance. Though you are right, they are ramping it up across their sites, for example Orkut.com now has adsense on it (BTW, Google groups almost gets zero traffic when compared to their other verticals).
However that top sponsored link they added to local search must be making a ton, anybody knows when they added that ?
– amr
Comment by amr — October 19, 2006 @ 8:37 pmSequential revenue growth is best measured using NET revenues, or revenues minus TAC expense. On this basis,
Google grew 11.6% (Gross profits, also good to use, rose 11.9%). Also, operating profit (before exp for
employee options) was up 11.6% sequentially.
So I don’t know why analysts bother to look at gross revenues, when net revenue growth is the true measure of
Comment by JP — October 23, 2006 @ 3:32 pmgrowth for the company. Now if you want INDUSTRY growth, probably best to use gross revenues for apples-to-
apples comparisons.