Amr Awadallah Blog

I cant believe it has been a year already, about this time last year I made the following blog posting predicting Google’s first miss:

Google will miss 2005-Q4 quarter revenue estimates

That blog posting was picked up by many folks, like Silicon Beat, John Battelle, Caterina Fake, Ken Norton (whom now works for Google!), and even CNN Money.

There were many skeptics calling me names and stuff, but Google announced and they did indeed miss. They did great, very nice growth, just missed what the analysts were incorrectly expecting.

Well, ever since then it was very hard to predict correctly, either Google learned the lesson and started smoothing out their changes, or the analysts learned their lesson and became more realistic.

Q4 of 2006 is no different, it is very hard to predict what is going to happen. Wallstreet analysts are expecting Google to deliver 18% sequential revenue growth. I think 18% might be hard to meet, since Comscore said that Google US Search PVs only grew by 8% from Q3 to Q4, hence that extra 10% has to come from improved RPS, or international growing much faster than US.

I did not see any significant changes to Google’s user interface to deliver strong RPS gains, but then Google now has many “levers” to play with. For example, they might have increased the minimum CPC bids required for many keywords, or they might have increased the number of ads they show at the top of their SERPs (they now control the number of ads on a per user basis, users whom click less on ads, see less ads, users clicking a lot get more ads). These things are very hard to track.

I don’t gamble, but if I had to bet, I would bet that they will not exceed the 18% sequential revenue growth, we shall see next week.

— amr

Well 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, isn’t that 9%?).

Either Comscore is really off (and Google gained a ton of search pageviews in Q3), or Google raised their CTR/CPCs way way up, or both. They did say this in their presentation “Monetization was the primary driver of revenue growth; traffic gains also contributed meaningfully”.

The increase is mainly coming from Google Sites at 14% sequential increase, the Google network (which includes both search on other sites like AOL, 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).

This is indeed amazing performance for a slow summer quarter.

-– amr

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