$94, er, $106 Billion

That's a very large market cap. Today is a quiet posting day, for various reasons, but I did find the time to step into a CNBC studio and mull why Google seems to be pulling away from everyone else in search related earnings. My really, brilliant, over the top…

Google MoneyThat’s a very large market cap. Today is a quiet posting day, for various reasons, but I did find the time to step into a CNBC studio and mull why Google seems to be pulling away from everyone else in search related earnings. My really, brilliant, over the top observation? Google is the leader in search. Since it has more searches than anyone else….it has more earnings. It also seems to be better at monetizing its searches, though exactly how is anyone’s guess…

Also, notably, Google is pulling in more and more searches on its own google.com site, which of course are the most profitable kind of searches there are. No pesky publishers to whom you must pay TAC. Just pure marginy goodness. Now do you understand why they are pushing the Toolbar?! (Besides that long term idea of knowing loads about you so they can personalize search, of course…)

A few tidbits from the earnings worth mentioning, many from Comscore data that Street analysts are quoting:

Average revenue per search (yes, any kind of search, not just paid): 12 cents. It was around a dime in late 04.

Avg. revenue per searcher: $7

Avg. revenue per sponsored click: 62 cents.

Estimated profits for Google in 06: Roughly $4 billion (Bear Stearns) (which is about the same as their forecasted annual revenues this year, FWIW)

Revenue growth of Google year to year: 96%

Of Yahoo: 42%

Estimated revenue growth for next year for Google (Bear): 61%

For the average of eBay, Yahoo, and Amazon: 29%

Price target for GOOG (Piper): $445

Number of shares Battelle owns (For all of you who keep asking): 0

Also: Number of employees added in the past year: Nearly 2000

Amount spent on capex, 05 (estimate): $800 million

Amount MSFT is estimated to spend: $810 million


18 thoughts on “$94, er, $106 Billion”

  1. It also seems to be better at monetizing its searches, though exactly how is anyone’s guess

    Google built and rolled out a machine learning system (AI) to select the ads to display on key words. The in house developers who built the system were some of the first to recieve cash / stock award money Google hands out to reward internal projects. I was told the system they developed was credited for boosting Google’s revenue 20%.

  2. $7 per searcher? Thats a lot of money. I seldom click on the ads. I asked around with my colleagues and friends and very few actually click on them too. Correct my ignorance but if Google earns revenue only when their searchers click on their ads, who is actually clicking on them? Viewers of this blog, how often do u guys click on Google ads?

  3. It’s funny because I also think who would want to click on the ads, but sometimes I find the paid listings to be more useful – although very sporadically.

    For example, recently I searched for a travel agency that could organise the difficult process of applying for an Iranian visa. The search results talked about the visa requirements, but the paid results offered the service I was looking for. Advertising can be a positive thing when you are looking for it.

  4. The reason that 12cents/search is hard to believe is that is it probably wrong. The original Majestic numbers of 8.3cents/search that John cites were also too high.

    The reason those numbers are wrong is likely due to underestimation of the total number of searches google receives. It’s also possible (as Danny Sullivan argues that the contextual revenue (perhaps 45%) isn’t accounted for properly.)

    Comscore and Nielsen make estimates that there were around 5B total searches/month in the US across all search engines in August 2005.

    The problem is estimating total number of Google searches from the comScore data. If according to comScore, the US represents approx 2B/month for Google, what is the worldwide total. Only Google knows. However, in early 2003, Danny Sullivan reported that Google was receiving 250M searches per day: http://searchenginewatch.com/reports/article.php/2156461. That’s 7B+ / month. So somethings amiss with the comScore numbers, because, while they say Google gets 2B US searches in A MONTH, given Google’s powerful growth rates and wider use of serach here in late 2005, I think it’s much more likely that Google is doing near or above 1B searches PER DAY.

    If you say 90B searches for Q3 2005, and Google made 1.5B in total rev (before TAC) and say 80% was search related (including the fact that most of AdSense is AdSense for search), you get approx $1B in revenue from 90B searches.

    Would you believe 1.1 cents revenue per search? I think that’s much more realistic.

    It doesn’t matter too much in the end, because Google is making gobs of money and their cost per incremental search is tiny.

  5. The truth is Geeks & bloggers seldom click on sponsored links but the general public dont care and most of them dont even know they are clicking an advertisement.

    This is another reason why the new advertisement dependent Web 2.0 services should get out of the geek crowd and become mainstream soon!.

  6. John – since you brought up the number of shares you own (zero), why haven’t you bought any GOOGle stock yet? Have I missed your post on this one?

  7. Thanks, Zack. I certainly believe this (look at who google hires), but it’s a little contradictory that there are so many people offering services meant to improve the use of AdSense. Perhaps this will wipe out some of that business. All indications are that there will be a lot of handholding necessary once Madison Ave. starts their pilgrimage west.

    Any guesses for how much of Google’s revenue is driven by fraudulent activity (clicks/splogs)? AdSense customers waive Google from any liability when they sign up, and reports say Google are the worst of the big 3 in providing data for a customer to use in tracking down culprits.

  8. With these revenues, what’s the chance of Google cracking down on AdSense spam?

    Is AsSense going to be part of relevancy interest or investor interest?

  9. I’m still confused by the business motive of AdWords ranking. Looking at the evidence, it would have taken someone an afternoon to implement a cyclic redundancy check (for non-geeks, this is just a simple way of obtaining a quasi-random “hash value” from a string) on ad text and keywords, and use the output of this as the AdWord ranking. This appears to be the monetization result of the effort.

    I’m assuming the original goal was to select ads that have a higher predicted click-through rate. I’m sure advertisers have a strong incentive to align their interests with the intended functionality of the AdWord ranker, which sounds like it definitely wasn’t ready for prime time.

  10. John

    I have used Google Ads for my business ‘Montclair Concierges’ for over a year.
    Many of the customers and prospects I get come through Google.
    I get as many leads through Google Searches as with my Google ADS.
    On the topic of Google profits, I noticed that in the past few months the minimum cost for my keywords has gone up quite a bit. It must be due to the classic supply and demand forces.

    Serge Lescouarnec aka Serge the Concierge

    My Blogs:

  11. Some more tidbits…

    Google’s stock price went up $36.70 or 12.1% on Friday to close at $339.90 in response to a strong earnings report after the close last night. So what does this mean to Google’s founders Larry Page and Sergey Brin? The value of Page’s stock holdings went up $1.241 billion and Brin’s stock holdings rose $1.232 billion. Not bad for a day’s work!

    As of 10/18/05, Larry Page owns 33,804,785 shares of Google which are now worth $11,490,246,420 using Friday’s closing stock price.

    As of 10/5/05, Sergey Brin owns 33,576,435 shares of Google which are now worth $11,412,630,260 using Friday’s closing stock price.

  12. On 9/21/05, Investor’s Business Daily noted in its (password protected) Daily Stock analysis that GOOG was building a 2nd-stage base.

    According to (IBD founder) Bill O’Neil’s CAN SLIM investing philosophy, leading stocks often undergo powerful upsurges separated by three to four extended periods of base building. If true, what we are seeing now is GOOG’s breakout from a 2nd base. Breakouts from the 3rd and 4th-stage bases are more tenuous. However, if GOOG continues to show such powerful earnings growth (a big “if”), this stock might still have legs for a while.

    The thing to watch out for is when all the pundits who are currently skeptics (the ones who are constantly amazed at GOOG’s earnings surprises and stock action) begin to tout the stock as a can’t loose proposition. That’s probably the time to sell.

  13. The thing I find most interesting is that they are spending aprox the same capex as Microsoft!

    I mean we have all heard the rumors: Google Wi-Fi, G-wallet (Google.com/purchase), G-bay (base.google.com). I mean maybe they teamed with NASA up their to put AdSense on the moon (not sure if contextual relavency or geo-targeting wins out in that algo; better ad “get pics of the Moon here” or “Spacesuits-R-Us”).

    But seriously there is only some much to buy out there. $800 million dollars!!! Come on, someone tell me they aren’t spending all that on beanbags and free redbull!

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