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Has Google Hit the Ceiling?

Google Lego

Google has just released its first-quarter results and, unsurprisingly, they show that the search engine giant is still making healthy profits, despite the slight cock-up of the Nexus One launch and the China debacle. Profits were up 37% to $1.96 billion, while revenue was up 23% to $6.78 billion, although the firm's share price dipped by 4.6% on the news. Analysts gave a general thumbs-up to the results, pointing out that Google is a victim of its own success, as its investors were probably expecting higher numbers.

Despite Google's workforce increasing by 4% from the last quarter—they now have 20,621 employees—capital expenditure was only up slightly, from $221 million to $239 million. The serious money is coming from revenue at Google-owned sites (YouTube, Picasa, Orkut, and the like), up 20%, with AdSense revenue posting a 24% increase. Cost-per-click is up 7% and paid clicks up 15%.

The firm's CFO, Patrick Pichette, said that Google had performed "very well" in its Q1 results with a 23% year-on-year growth. "Going forward, we remain committed to heavy investment in innovation, both to spur future growth in our core and emerging businesses as well as to help build the future of the open Web."

International revenues were static from the last quarter of 2009, at 53%, which begs the question: Has Google hit a ceiling? It is doubtful that its withdrawal from China will affect the firm's profits yet—after all, Google's search engine comes a poor second on the Chinese mainland to Baidu—-but this is the part of the business to keep an eye on in the coming months.

Speaking of Google-owned sites, the YouTube-Viacom copyright spat reared its ugly head again yesterday, with the media company choosing to release a bunch of previously secret emails between Google and YouTube employees. "YouTube's business model is completely sustained by pirated content." Well, yeah—until, that is, the major firms took note and chose to start working with the online video site. Google retaliated by laying a giant red, blue, green, and yellow turd in Viacom's foyer—sorry, I'll start that sentence again. Google retaliated by saying that, while Viacom was uploading its own material to the site, how could YouTube have differentiated between authorized and unauthorized footage.

Finally, although Google doesn't really talk about the Nexus One, let's bring it up briefly. Some commentators are pointing out that its relative belly flop into the smartphone market at the beginning of the year is one reason why the firm's profits are not beefier. Look at Android's share in the smartphone market, however: up from 2.8% to 9% between October 2009 and February 2010. Perhaps it's not just about the handsets.

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  • Justin Benson

    Google is looking more and more like MSFT vs AAPL. AAPL continues to bring on new products that are credible growth engines. GOOG is living off it's main bread and butter cash cow. MSFT also lives off their cash cow although they're more at risk as there are increasing competitors to their cash cow each day. GOOG doesn't have that (quite yet)

  • Aly-Khan Satchu

    They have invested for the Future and that has crimped the numbers but I think post Intel the Market was set up for a Blow Out Quarter and pretty much anything would have disappointed the Market. I note with interest that Mr. Schmidt is no longer the Face at this Quarterly report and I think that makes sense. Some of the Comments [We want to make life better for the Chinese] were just plain faux naif. China is a big loss and The Tape is your Telescope. Do compare Baidu versus Google since January. Google is the Preeminent Information Market Maker and Custodian in what is an Information Century but China is but the first collision with Individual States perceived National Interest. Future Growth is surely capped unless they can navigate this.

    Aly-Khan Satchu