Google Giddy With Growth

Google  reported revenues of $2.69 billion for the
third quarter ending September 30, 2006, an increase of 70 percent over Q3
2005, and 10 percent higher than Q2 2006.

The Mountain View, Calif.-based company also posted net earnings of $812.3

Net margins, at 38.3 percent, were almost a full point higher than the 37.6
percent margin recorded last quarter and 37.8 percent in Q3 2005.

CEO Eric Schmidt credited strong growth in traffic, innovation, improved
search quality, and diversification with driving these results.

“The blizzard of our product launches seem to create opportunities for us
every day,” he said during a conference call with analysts this afternoon.

But he placed the greatest emphasis on partnerships, which he said defined
new and important markets for the search giant.

In particular, he cited deals with eBay , Intuit   and News Corp .

Each of those partnerships, he said, expands Google’s reach into new
geographic areas, demographics and, thus, potential new audiences for advertisers.

The relationship with Intuit,
for instance, allows Google to generate business from small businesses, many
of which have no presence at all on the Web.

The agreement with News
gives Google access to legions of MySpace enthusiasts.

And the eBay deal
gives Google greater exposure to international markets, which also performed
strongly for Google.

Schmidt predicted that the company’s acquisition of YouTube,
when it closes, will have a similar effect.

“Partnership is a way of doing business for us,” he said.

According to Schmidt, each of these agreements compounds the benefits of the
previous ones.

“The diversity of our approach is one of our strengths,” said Schmidt.

That diversity, however, does not extend to a new business model.

The company emphasized that it is about search and revenue sharing — not
content creation.

“Their message was that partnerships allow them to become part of a larger
universe in which they provide the search functionality,” noted JupiterKagan
analyst Emily Riley.

Revenue growth was also driven by improvements in the company’s ability to
improve revenue per thousand (RPM) through improved search algorithms, the
company said.

“The tools and resources we have at our disposal to bring the right ads to
right users at right time — these are things we couldn’t have contemplated
doing in the past,” noted Sergey Brin, Google co-founder and president of

Google also recently introduced Webmaster Central, a way for
partners to gauge how their ads are performing.

Riley said these kinds of efforts give partners confidence in the Web
advertising model.

“People put money towards the stuff that works,” she told

Schmidt did become defensive when an analyst with JMP Securities questioned
the wisdom of continuing the company’s spending spree on capital
expenditures, which is growing at an even faster clip than revenues.

But Schmidt said he’s heard such criticism before.

Part of the reason for the company’s success “is we quote-unquote
over-invested in capital. We intend to continue that,” he said.

Google’s results were welcome relief after disappointing news from Yahoo earlier this week, which some investors feared
foreshadowed weakness in the overall market.

“This shows it’s not a market problem, it’s a Yahoo problem,” said Riley.

Google executives could be heard giggling delightedly once the conference
call ended, until Schmidt was heard asking whether they had effectively hung
up the phone.

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