Google Goes Big; Specifics Be Damned

Sam Gustin writes: Who needs specifics when you blow out Wall Street expectations in the midst of a financial crisis and recession?

Defying an online advertising slowdown and a weakening economy, Google reported strong third-quarter earnings, beating Wall Street's expectations and sending the company's shares up nearly ten percent in after-hours trading.

Google reported earnings of $1.35 billion, $4.24 per share, a 26 percent increase from $1.07 billion, or $3.38 per share, a year ago. Excluding stock-based compensation, the company said it would have made $4.92 per share, which handily beat the $4.75 consensus that Wall Street analysts were expecting.

Investors and analysts were looking for information from Google executives on a number of key issues. But the company offered few specifics on the big-ticket items -- which they can get away with because their results were so strong. Here's what they did -- and did not -- say.

- Online ad spending: Google's strong quarter bolsters the company's contention that it is better insulated from economic downturns than many of its competitors, thanks to the efficiency and return-on-investment of its core search advertising business. Because marketers can monitor the results of their search ad spending on Google very closely, the company believes that it can increase its overall share of advertising budgets. Moreover, in tough economic times many consumers will shop online, searching for bargains, which helps Google, company chief executive Eric Schmidt said. The company said its paid clicks were up 18 percent. Verdict: It appears that Google is viewed by many advertisers as a safe haven during downturns. Of course, the recent financial crisis wasn't reflected in Google third quarter results. For that, we'll have to wait until January.

- AdWords: The company had little to say about recent improvements to its AdWords monetization system, other than to say that the quality score initiative is still in the process of launching, and should fully roll out early next year. It doesn't appear the improvements had an impact on third quarter earnings.

- Chrome: Not much detail about other than some platitudes by Sergey about needing a reliable platform to run its myriad web services. Given Chrome's failure to materially dent the browser market, there's probably not much more he can say. Fact is, only one or two web surfers out of 100 is using it right now -- and it's certainly not impacting the company's bottom line. As I've written before, Chrome is more of a long-term strategic gambit aimed at moving the center of computing from desktops toward the cloud, not a short-term market play.

- Android: Sergey uses an Android phone. And he wants you to, as well. Nothing on how the company plans to leverage it to boost mobile advertising revenues. And no impact on the bottom line yet. The first model from T-Mobile, named the G1, isn't even available until next week. "The G1 is the first of a number of phones that will be running Android, hopefully," Sergey said.

- YouTube: Beyond recapping the recent announcements, Google execs said that YouTube is now running ads on 90 percent of the content that its partners have claimed using the company's content identification program. Big opportunities on the mobile and geo-location targeting front, but no specifics on revenue.

- Currency: Half of Google's revenue comes from outside the US, which means that the company takes a hit from the strengthening dollar. To combat this, Google has instituted a currency hedging strategy. "Clearly currency was working against us this quarter, but our hedging program was working well," said Patrick Pichette, Google's new chief financial officer. The company's appears to have mitigated much of the negative currency effects so they didn't substantially dent the company's bottom line.

- Yahoo search ad deal: "We understood that deal would be controversial and that our competitors would oppose it," said Schmidt, "We anticipated a 4 month delay, and hopefully we are nearing end of that period." He declined to go into much detail about the company's strategy to win regulatory approval.