Oct 172010

Google officials wowed financial analysts on the company’s
third-quarter earnings call by unveiling display and mobile ad
statistics it usually keeps close to the vest.

Google for Q3 reported a 32-percent profit hike of $2.17 billion on earnings per share of
$6.72, up 32 percent from the $1.64 billion on $5.13 per share tallied
in Q3 2009. Google’s Q3 revenues totaled $7.29 billion, up 23 percent
from the same period a year ago.

These figures were aided by growth in Google’s display ad business,
which is operating at an annualized run-rate of $2.5 billion.

That’s counting YouTube ads, and all non-text ads running on Google’s
network and DoubleClick networks, Jonathan Rosenberg, Google’s senior
vice president of product management, said on the Q3 earnings call.

“You guys always ask me… where’s your next multi-billion dollar business after search,” Rosenberg said. “There’s your answer.”

YouTube is a particularly shiny star, with more than $2 billion page
views monetized each week, up 50 percent from a year ago. However,
Google CFO Patrick Pichette declined to say whether YouTube was

Meanwhile, Google’s mobile ad business is running at a yearly run-rate
of $1 billion, with mobile searches on Android devices up 5 times from
just two years ago.

This means people accessing products and services from smartphones are
tacking $1 billion onto Google’s revenue streams, Rosenberg stressed.
“Clearly this is the future of search in the Internet,” he said.

What this means for analysts is that while search advertising remains
Google’s core bread winner, businesses it has bet heavily on for the
future — YouTube and Android — are beginning to pay off as the next
multi-billion-businesses analysts have been searching for.    

Caris and Co. analyst Sandeep Aggarwal said Google is now approaching a
stage where non-core search business is becoming material enough to
positively surprise Street for top-line and bottom-line.

Looking out the next three years, Aggarwal said in an Oct. 15 research
note that he expects search can deliver 15 to 16 percent compound annual
growth rate, while non-core businesses, such as display and mobile
advertising, will deliver a CAGR of 40 percent to 45 percent.

“We expect the non-core search business to be a source of incremental
value creation at a more rapid pace, supported by a hockey stick type of
mobile and display adoption, combined with operating leverage in mobile
and YouTube, while a “disciplined and frugal” approach to growth should
help margins,” he added.

Gleacher and Co. analyst Yun Kim was a little less sanguine about
Google’s display ad business in his Oct. 15 research note, where, he

“While we are beginning to see signs that its display business is
growing fast enough and is big enough to offset a potential decline in
its search business, we believe it is prudent to wait at least one more
quarter to ensure that this growth can be sustainable.”

Still, there is no reason to think Google can’t sustain the growth.
Rosenberg ad-libbed on the call that Google’s display and mobile ad
businesses were still growing.

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