Google Advances In Telephony, E-Books, YouTube

Google (NASDAQ:GOOG) finally seems to be regaining some recent lost ground: Following the 3Q09 results announcement on October 15, its stock crossed a 52-week high of $554.75 on October 16 after having slumped to under $250 last year. Many industry observers believe that with the economy picking up slowly, it will be giants such as Google that will manage to rake in the money as advertisers again open their purse strings.

The recently announced Q3 results are representative of such growth. Revenues of $4.38 billion grew 8.5% over the year to exceed the market’s expected $4.23 billion. EPS of $5.89 also beat the market’s expectations of $5.40.

Revenues from Google-owned sites grew 8% over the year to $3.96 billion, contributing 67% of the quarter’s revenues. AdSense generated $1.80 billion in revenues and grew 7% over the year. The weakening dollar is helping Google to post revenue growth; 53% of the company’s revenues come from international markets.

In other metrics, Paid Clicks made a gradual recovery with 14% annual and 4% sequential growth. The average cost-per-click grew 5% sequentially but was still 6% lower than a year ago.

Google marginally expanded its share in the U.S. search market despite enthusiastic reviews for Microsoft’s Bing and Yahoo!’s $100 million marketing campaign. According to a recent comScore report, total U.S. core search volume grew 17.3% over the year in September compared with the 19.2% year-on-year growth in August. Google’s U.S. search market share grew from 64.6% in August to 64.9% in September, with core search volume growing by 20.9% over the year in September compared with 21.6% annual growth in August. Compare these numbers with Yahoo!’s market share, which fell from 19.3% in August to 18.8% in September, and Microsoft’s market share, which inched up from 9.3% in August to 9.4% in September.

But search continues to have its share of problems. After the click fraud issues earlier this year, Google now has to answer to concerns of typo-squatting. A soon-to-be-published research paper by Harvard Law professors Ben Edelman and Tyler Moore discusses how Google manages to make money through provision of ads placed on typesquatting domains, which can be defined as “millions of empty Web sites that register misspellings of popular sites.” While Google denies any fraudulent intention, advertisers are surely worried about the ROI made by their ad budgets.

Meanwhile, Android, Google’s mobile platform, is being rapidly adopted by device manufacturers. Motorola, Samsung, Sprint, and Verizon recently joined the ranks of those planning to launch Android devices. Twenty Android phones are expected to be released this year, and Gartner estimates that the number will double in 2010. Android’s market share is expected to reach 14.5% in 2012 from a mere 1.6% in the first quarter of this year. Also, with applications increasing and, hopefully, improving, the percentage of Android phone users who purchase applications is expected to grow from the current 19%. To reach iPhone levels of 50% may take a long time, though.

Android is critical to Google’s mobile strategy. Google maintains that growth in the mobile search business does not imply any reduction in the desktop search market, because mobile search is used during the weekends while desktop search is used during the weekdays. During this quarter, mobile searches increased 30%.

Google is continuing to move beyond search. Within display, the company is seeing good traction with YouTube. Though it still has not divulged numbers, Google maintains that YouTube will turn profitable very soon. YouTube is monetizing more than 1 billion video views a week on the site and boasts of “90% of the top 50 AdAge advertisers” running successful campaigns on the site. To improve content, YouTube is focusing on partnerships and recently tied up with Time Warner and Warner Music for premium content.

During the quarter, the company continued to improve DoubleClick’s offering through the Ad Exchange, which will give AdWords advertisers access to more inventory and enable third parties to advertise on their AdSense publishers’ sites. Google estimates that nearly 25% of inventory remains unsold due to the absence of a common exchange on which it can be traded. The DoubleClick Ad Exchange hopes to make such trade possible, thus improving market efficiency and reducing prices.

Google also recently launched a new AdWords Front-End, through which users will be able to create additional reports and run more efficient campaigns. The company is also testing new ad formats and offerings such as local listing ads and is integrating applications such as Google Voice with ads so that users can track calls.

Google is also aggressively marketing the Google Voice application, which gives users a single phone number that forwards calls to their desired number and enables free domestic long-distance calling in addition to having features such as voicemail, conference calls, and receipt of SMS messages via email. While the initial subscription for the service is via Google invitation only, the company is looking to increase the number of invitations available with users to rapidly expand the service. Although there are still many problems to be ironed out, the application has been described as “just short of perfect” by sites such as PCMag. Over the summer, however, Apple removed all Google Voice applications from its App Store in a move that was met with scorn by tech journalists and consumers.

Google recently announced the launch of Google Editions platform to sell online books. Over the past few years, Google has made digital editions of more than 10 million books. But due to copyright issues, they are only permitted to display snippets of the books. By the middle of next year, Google will be selling some of those books which have been submitted and approved by copyright holders through Google Editions. Books purchased through Google Editions will be accessible via a Web browser on devices ranging from smart phones to netbooks to computers, thus competing with Amazon’s Kindle business. The market for online books is expanding; research firm Forrester projects that nearly 3 million e-readers will be sold within the United States this year compared with 1 million a year ago, and Google plans to address this market.

Google is also developing a micropayment platform to be made available to both Google and non-Google properties. The system will be an extension of Google Checkout and will enable the news industry to charge for content online. If successful, this can be a great benefit to the struggling media industry, bending under the free content burden.

Google is also looking at a few acquisitions in the coming years. With $22 billion in cash at the end of this quarter and the additional $2.5 billion cash generated each quarter, the company could very well consider expanding their vertical portfolio.

The stock has is trading at $550 with a market capitalization of $174 billion.