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Google's Financial Results: Upswing Indicator?


With economists and the tired-out general public desperately sniffing the air for the scent of economic recovery, results from a giant like Google are extremely significant. Its 2009 figures are now out. And they're "Okay."

Google's Eric Schmidt sets the tone of is results in the first paragraph of its press release: "Google had a strong fourth quarter, with 17% year over year revenue growth." That sounds impressive, but Schmidt was careful to note that the "global economy is still in the early days of recovery" which means Google's results are really an "extraordinary end to the year" rather than merely a 17% growth figure.

That 17% figure relates to Google's fourth quarter gross revenue figure of $6.67 billion, up from $5.7 billion last year. This translates into an operating income of $2.48 billion for the quarter, or a margin of 37%—a truly impressive figure if you were looking at an industry like manufacturing, but Google's business structure is extremely different, so you may expect such a high number. This margin is up from 33% in 2008, and that could be considered a better indicator that Google's business is on the upswing—since it indicates that even in a time when the economy is still bleak, and advertising revenues haven't recovered yet, Google was able to more efficiently translate its revenues into profits.

Buried among the finances is the interesting TAC—that's Traffic Acquisition Costs—statistic. Google notes it as "the portion of revenues shared with Google's partners" but you can consider it as a direct measure of how much it costs Google to drive visitors to its search site and other services from other Web sites, in order that it can then serve them advertising. It includes figures like the reputed $2 million per month Google pays Apple so that its search engine is the default choice for Mobile Safari on the iPhone (something we'll have to observe carefully if, as rumors suggest, Apple may switch to Bing.) Google notes that TAC increased to $1.72 billion in the last quarter of 2009, versus $1.48 billion in 2008, and that could also be used as an indicator that Google's trying hard to keep its traffic up, and that the strategy appears to be working.

Google notes its net cash from operations was up from $2.12 billion in Q4 2008 to $2.73 billion in 2009. The company also makes several mentions that it plans to use its cash rather than hoard it—like Intel it seems keen to spend its way out of recession by continuing "to make significant capital expenditures." Schmidt even notes his company remains "optimistic about the Internet" (er...that's something we would have automatically hoped to be true!) and it will continue "to invest heavily" in technological innovation "for the benefit not only of our user and customers, but also the wider Web." Which we can take to mean the company knows it needs to invest for the future, and that it'll continue to extend creeping, grasping business tentacles into even more distant corners of Internet business in 2010.

Overall then, the results are solid. They're ahead of expectations, just, if not absolutely mind-blowing. But what's missing from these figures, of course, is any indication what Google's political moves in China might result in over the medium to long term. The financial report notes that the international revenue split rose to 53% in Q4 2009 from 50% the year before, which highlights that Google really is more of an international player...even while that implies it's more sensitive than it used to be to the foibles of global goings-on. Google's China revenues weren't astonishingly large according to some analysts—perhaps 2% of the total—but should it be forced to close its site, and the government sealed off all access to from within the country, it could have long term repercussions on the profits. We'll have to see how the politics resolves, and look at next quarter's finances to see what's gone on though.


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  • Chris Reich


    Yes, I do. And no I don't. Google is tough to use as a yardstick because Google is so alone in its class.

    It's somewhat like using Bershire-Hathaway shares as a market indicator. You just can't benchmark anything that is in its own league.

    Now if we see Yahoo and Bing! show big revenue increases, we might surmise that something is afoot. But I would rather see companies buying equipment than advertising.

    I see two things. First, this recession did some permanent damage. Look at the debt---it's gone out of control and look how much of our indistrial capacity was bought up as our big players tried to stay in the game. GM comes to mind.

    Second, the 'recovery' is very fragile. The Christmas bomber darn near halted the recovery. Another 911 type event will slam the brakes to the recovery.

    Chris Reich

  • Gregory Ferenstein

    Chris, thanks for your comments. Do you think that some businesses, such as Google, are ahead of market trends? That is, though Google is an exception, because it's so massive, it may point the way the market is headed?


  • Chris Reich

    I agree with Mark. Google's current success is related to companies trying to market their way out of a hole. It's not a sign of recovery. When unemployment falls below 8% we can feel more secure. When real income rises, we can feel more secure. When the value of the dollar exceeds the Euro, we can feel more secure. When the annual contribution to the national debt gets down into the sane low hundred billions (I'm feel ill) we can feel more secure.

    In short, we've got a long, long way to go before we can feel more secure.

    Much of the shrinkage from this recession is permanent and will mean a reduction in lifestyle for the U.S. We've let our industrial base slip, education slip, political accountability and ethics slip. I doubt America has the will to rebuild these vital pieces of our economic future. Worse yet, they all tie together. Dumb people let politicians get away with too much. Ethical erosion means more manufacturing loss.

    Chris Reich

  • Daryle Hier

    Lolly-pops and ice cream, woo hoo! NOT! Google is the exception to the rule. Expect a double dip in real estate and then the ensuing depression. Reality bites.

  • Aly-Khan Satchu

    The c21st is an Information Century and the Information economy remains in a hyper growth Curve and therefore these Results merely confirm that Google is the Premier Information Company right now. It is inevitable that Google are going to beat a retreat in China the question is merely when they capitulate and go back because a Nation of 1.3b Souls and 400m on the Internet is no small Potato. It was clever Politics especially given the nature of the Information Bank that Google hold on each and everyone of us, from the very Key Strokes that we undertake. In many ways, the similarities are greater than the differences.

    Aly-Khan Satchu

  • Mark Petticord

    I have a hunch that Google revenues are because millions of businesses are starting to marketing on the internet, not to mention revenues from affiliate marketing. Also, with a tough economy and difficult job market people are diversifying and looking for ways to create income on the internet.