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Google Shines Amidst Volatility

Posted on Friday, Oct 17th 2008

Google (GOOG) reported Q3 earnings yesterday that exceeded all market expectations despite the worsening economic conditions. They reported revenues of $5.5 billion with EPS of $4.92. The market was looking for revenues of $5.6 billion and EPS of $4.75. Google’s revenues grew 31% over the year. By segment, Google.com’s revenues grew 34% over the year to contribute $3.7 billion and AdSense revenues grew 15% over the year to $1.7 billion. Paid clicks grew 18% over the year and 4% over the quarter.

US revenues grew 22% to contribute $2.7 billion to revenues, and international revenues grew to $2.8 billion. There was some weakness in UK revenues, which still managed to grow 17% over the year while remaining flat sequentially.

Google continued its experiments of monetizing YouTube with the introduction of a click-to-buy feature. Viewers can now buy a CD of the videos they watch. Google expects this to be a great feature for viewers and publishers. I however, think that it just another feather in their cap of monetizing crap.

Google is trying to improve their user experience through better search and better ads. They claim that the acquisition expectations from DoubleClickare being met as they are now displaying more relevant ads against queries. They updated their quality-based bidding system, which helps them remove underperforming ads and replace them with better ones. They are also improving search by merging results from videos and books with the overall results. But they are still not doing enough, especially in verticalization.

Meanwhile, AdSense’s lack of effectiveness continues. Unperturbed, Google recently announced the launch of AdSense for Games, hoping to target the more than 200 million people who play online games.

Google also announced a few innovative launches in the recent quarter. They are launching their new Android operating system on T-Mobile’s G1. They claim that with their operating system, a mobile user’s experience will be similar to that of a desktop user. They released a web browser, Google Chrome, which is a robust platform to run web services quickly and efficiently, and competing with FireFox.

The stock slipped to a 2-year low of $309.44 yesterday. However, it recovered and closed at $353.02, 4% higher than previous day’s close. This morning, it is trading at $378. The market continues its volatility, and it is hard to recommend stocks to buy right now, without apprehending when more calamity will come. “President Obama”, among other things, is going to cause another big drop, I think.

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