

Google Revenue Jumps, But Misses Forecasts - mindcrime
http://www.nytimes.com/2014/04/17/technology/google-revenue-jumps-but-misses-forecasts.html?_r=0

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ChuckMcM
Interesting results. I've remarked in the past how the decreasing CPC numbers
were being papered over by creating massive amounts of inventory (more ads per
page to click on) and paid click growth has largely been facilitated by adding
distribution "partners" which is code in the search business that shove
traffic your way. Early on in Google's history it was all organic but this
last quarter they were spending nearly a billion dollars a quarter to have
people send them traffic. Looking at the numbers for the last 12 quarters its
like this:

    
    
              Paid Click deltas (%)     Traffic Spend 
                 Y/Y Q   Prev Q        ($m)     y/y    q/q 
       Q1FY2010    15      5           265      --      --
       Q2FY2010    15      (3)         269      --      1.5
       Q3FY2010    16      4           285      --      6
       Q4FY2010    18      11          333      --      17
    
       Q1FY2011    18      4           337      27      1
       Q2FY2011    18      2           355      32      5
       Q3FY2011    28      13          383      34      8
       Q4FY2011    34      17          442      33      15
    
       Q1FY2012    39      7           468      39      6
       Q2FY2012    42      1           507      43      8
       Q3FY2012    33      6           556      45      10
       Q4FY2012    24      9           634      43      14
    
       Q1FY2013    20      3           680      45      7
       Q2FY2013    23      4           706      39      4
       Q3FY2013    26      8           755      36      7
       Q4FY2013    31      13          824      30      9
    
       Q1FY2014    26      (1)         845      24      3
    

Who would have thought between Microsoft and Google that sending search
traffic artificially to a search engine would be a > $4B/year business? I
don't think it is sustainable long term.

~~~
whoismua
Why isn't Google suffering a backlash and lost share due to this
[http://digitalgrowth.com.au/wp-
content/uploads/2013/07/googl...](http://digitalgrowth.com.au/wp-
content/uploads/2013/07/google-uk-hotel-ads-1024x639.png) ? I cannot use them
without ad blockers, I suppose I'm not the only one ;)

~~~
branciforte
What did you expect? The VAST majority of people who type "london hotels" are
looking to BUY a hotel room in London for the night.

Try a search like "Albert Einstein". No ads.

Are you doing research on hotels in London? Then you'll need to add some more
keywords. Google Search is not setup specifically for London hotel
researchers.

~~~
whoismua
What's you point?

 _The VAST majority of people who type "london hotels" are looking to BUY a
hotel room in London for the night._

And extremely expensive ads are the only way to help users???? The advertiser
and Google don't have the user's interests in mind.

>> _Then you 'll need to add some more keywords. Google Search is not setup
specifically for London hotel researchers._ Of course not, because this was is
more profitable to Google. They'll change the setup and display to increase
their profits when necessary.

------
nraynaud
I love the title. As far as I know, it's the forecast that missed the reality.
When the weather is not as planned, it's the weather service that missed, not
the sky. It was not an engagement form google.

It's incredible how twisted some vocabulary has become. What do they say when
they forecast on agricultural prices and the actual weather influenced the
production? corn production missed the forecast?

~~~
bonaldi
Er, yes? "Corn yields fell short of forecasts" is a common phrasing.
"Temperatures failed to reach record highs set in 19xx despite the longest
heatwave since records began" is another type of thing you'll see.

~~~
nraynaud
that's just wonderful. I'm still debating between Wes Anderson/Bill Murray or
Tim Burton/Johnny Depp to shoot a movie where those sentences would be
uttered.

Maybe I'm just not made for this world.

------
johansch
Ah, this is why we've seen so many google-related tech successes being
publicized today...

~~~
IBM
I'm glad I'm not the only person that notices this. There's a reason why these
puff pieces came out when they did:

[http://www.theverge.com/2014/4/15/5615880/building-blocks-
ho...](http://www.theverge.com/2014/4/15/5615880/building-blocks-how-project-
ara-is-reinventing-the-smartphone)

[http://www.fastcompany.com/3028156/united-states-of-
innovati...](http://www.fastcompany.com/3028156/united-states-of-
innovation/the-google-x-factor)

It's about managing investor sentiment. Core profitability of their ad
business (as indicated by CPC) has been declining for I think 9 or 10 quarters
in a row now? They're aggressively monetizing all their services and products
because of this to keep driving aggregate clicks up. "We'll make it up in
volume"

They need shiny baubles to dangle in front of investors in the absence of
creating real new markets and businesses that generate cash flow. It's not
just for investors either. They're attempting to be perceived to be an
innovative company in the eyes of their various stakeholders (employees,
potential employees, tech press, the general public, regulators, etc.) even
though they're pretty much the new Microsoft in terms of milking their one hit
(advertising).

Funny enough, Google's core business is being disrupted by the mobile
revolution ushered in by Apple (you won't read that particular narrative in
the tech/financial press because Google X and other high-profile "moon shots"
have been effective in accomplishing the PR objective). Android was a
completely defensive move about making sure the erosion to that business was
limited and that they'd have a slice of the advertising pie even if it's
fundamentally less rewarding than desktop advertising. If Google had attempted
to sell Android it would have never been as successful, so there was no
choice, it was purely about staunching the bleeding.

This is why Google has been so acquisitive for so many years; they're
desperately searching for new businesses that make money (and also clearing
the market of anything that could threaten their existing one). The tech media
interprets this as being "bold" and "innovative" (which really doesn't make
any sense when you think about it) but it's really out of fear and
desperation. Companies that have defensible moats around their business don't
need to overpay or rush into deals. The media cheerleads it because it gives
them something to write about and the resulting boom in Silicon Valley has
flowed to them as well. VCs cheerlead it because they rely on these insecure
companies to provide ample exits for their portfolio companies at lofty
valuations
([https://twitter.com/cdixon/status/427602474086584320](https://twitter.com/cdixon/status/427602474086584320)).
Follow Marc Andreessen on Twitter to see him try to justify valuations in
technology and dispel any comparisons to the Dot Com boom. Facebook does this
as well, but fortunately for them they have a stock that is insanely
overvalued which allows Mark Zuckerberg to use it as currency. Google's
valuation isn't as generous, but more importantly these acquisitions have been
diluting Larry and Sergei's controlling interest (something they recently
rectified with a new class of shares). So I'm sure they'll be matching
Facebook's pace in no time.

~~~
sjg007
It is perfectly reasonable to seek out other revenue streams. It is still a
land grab. There are many other megatech companies that aren't innovating or
acquiring and are slowly dying. The "tech platform" evolves every 10-20 years.
Innovate or die. We already talk about the Internet of things. Mobile apps and
mobile access are clearly eclipsing the PC. Odds are the next Facebook or
Google starts as some mobile app not yet invented.

------
zmmmmm
I always fear what will happen to all of Google's well-intentioned businesses
and ethical thresholds when / if the river of money starts to narrow. Will
they try to bring back their revenue with ever more desperate measures? Will
they slash and burn their investments? Or will they stick by their guns and
keep plowing money into new projects, continue walking the thin line between
"creepy" and "useful" without ever erring across it, even while their kingdom
crumbles?

We've never had to ask this question because on the back of an expanding
internet Google has risen with the tide regardless of their own performance
(and I'm not saying their performance has ever been poor, just that we have no
way to know in absolute terms). This particular instance may be nothing, but
every time they miss a mark I wonder whether we'll finally find out where
their principles truly lie.

------
whoismua
Google is overpriced IMO, their PE has been at around 30 for quite a while. At
their size it's extremely hard, if not impossible to keep growth at level to
justify the high PE. Google's PE should be around 15-20, max. Personally, I'd
rather own MSFT, better diversified and offers a dividend.

Their SE is unbearable without ad blockers already.

~~~
encoderer
There's a metric for this, the PEG ratio. It's P/E divided by real growth
rates.

Googles PEG is about 1.5. "1" is considered ideal, less than one is a "deal",
over 1 is not.

But 1.5 isn't bad. Amazon, for example, is around 4, even now after the
correction.

~~~
whoismua
But I think their growth is artificial and not sustainable. It's obvious that
their growth has been achieved by adding more ads to the pages even as their
CPC is crashing. .

~~~
encoderer
It sounds like what you have is an investment thesis :)

Put some money behind it! Maybe you're right..

~~~
whoismua
_Put some money behind it! Maybe you 're right.._

"Markets can remain irrational a lot longer than you and I can remain
solvent." comes to mind ...I was right two years ago but Google continues to
surprise me with their audacity and ability to suffer no penalties by users
and governments.

But eventually everything will be ads and someone might notice ;)

