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Google’s golden one-trick pony
Google chief executive Eric Schmidt declared “the worst of the recession is over” while unveiling third quarter results. Certainly Google’s recession doesn’t look like anyone else’s.
Revenues of $5.945 billion were up 7 percent from a year ago and up 8 percent over the previous quarter, after two flat quarters. Earnings of $5.89 per share were comfortably ahead of the consensus estimate of $5.32. Cost per click, the average amount advertisers pay, was up 5 percent from the second quarter, although still down on the previous year. And Google gushes money — the third quarter had $2.5 billion in free cash flow.
There are, however, factors that give pause. Part of Google’s strong recovery came from discipline. Capital expenditure was way down ($186 million compared with $452 million year on year), contractors in the workforce were largely eliminated, staff numbers were cut, and even the famed free food at the Googleplex was trimmed. Schmidt suggested that some of those constraints will be loosened. Capital expenditure will rise – the third quarter was already ahead of the second – and Google is hiring again.
Schmidt also talked about making strategic acquisitions, although these are likely to be small. When Google was growing by double figures each quarter, discipline was an afterthought. The company has shown it can clamp down, but there is some risk that it will return to previous profligacy.
Given the global downturn in advertising, which still accounts for the vast bulk of Google’s revenues, the results count as stunning. They were only 10 percent ahead of estimates, but estimates had been boosted in recent weeks by a stream of bullish comments from Google executives. During the darkest days of the recession, Schmidt insisted that search advertising would prove more robust than other forms, and he has been proven right.
There are also signs that Google may be finding ways to make money on drains like YouTube. On the earnings call, CFO Patrick Pichette said that Google is monetizing more than 1 billion videos views each week (YouTube streams more than 1 billion videos each day).
Ideas continue to stream out of the Googleplex, from clever phone service Google Voice to the over-hyped Google Wave. There’s also Android, Google’s mobile phone operating system. Schmidt said that “Android adoption is about to explode.” We’ll see. Most, however, don’t move the needle in Google’s multibillion revenues.
Gut feeling: How Google CEO valued YouTube deal
Let the second-guessing, the mock horror, the disbelief, the crowing begin.
Google CEO Eric Schmidt has acknowledged he realized upfront that he was overpaying to acquire YouTube, to the tune of $1 billion, judged by any conventional measures.
The many critics of Google’s $1.65 billion deal to acquire the video-sharing site three years ago will claim this confirms everything they have always said about the deal. Not quite.
In fact, not really at all.
Schmidt came clean in a deposition by lawyers in the Viacom copyright lawsuit that there was very little revenue coming into YouTube to justify the price his company paid.
No surprises here. There were intangibles to consider:
1. YouTube’s popularity was sky-rocketing, making it the runaway market leader among video-sharing sites. 2. It was crushing his company’s own site, Google Video. 3. YouTube was up for auction and would be sold to a competitor unless Google jumped first. 4. Google overbid to ensure YouTube didn’t fall into rival hands.
Yet, the author fails to mention perhaps the most important reason Google bought YouTube– to defend online content.
If Google’s objective is eyeballs– and we can all agree that it is– then it would benefit Google to have Internet users across the world being able to infringe copyright, i.e. upload copyrighted movies, tv shows, and clips.
At the time of Google’s purchase, the number one threat to YouTube’s success were lawsuits from copyright holders.
Without having the resources and clout of a serious parent company (i.e. Google, Microsoft, Newscorp, or maybe Yahoo at the time) YouTube would have been sued, and subsequently lost in the courts, therefore, setting a precedent that would have been much more detrimental to online video, and Google’s business, than overpaying for YouTube. Even at a price of more than $1.5 billion.
Don’t be fooled, Google knew exactly what it was doing when it agreed to pay more than 1 billion extra than it had “valued” YouTube, which was, reducing a threat to its business- which isn’t search, but rather attention. skh
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The Wall
