Prominent among the financial detail included in Google’s Q2 2014 Earnings Announcement is a 23% increase, year over year (y/y) in the revenue performance for Google sites (Google, Google +, Youtube, blogger, etc), to $10.94 Billion, from $8.87 Billion for the comparable period in 2013.
In a webcast of the quarter’s earning results, Patrick Pichette, CFO, noted the revenue increase was “driven by strength in our core search advertising business”.
It is worth noting, on the other hand, less impressive growth for Google’s “Other Business” segment (which include all of the “other” Google product segments: Apps, Drive, Compute Engine, etc). The final quarterly performance for this business segment remained below $2 Billion ($1.6 Billion, or 10% of total revenue is included in the GAAP financial summary to be found on the Google Investors site). Patrick Pichette points to the Google Play Store as the primary contributor for this segment.
The real story, then is an increased global appetite for paid click advertising. Pichette sums up the quarter’s performance for the global click ad revenue group as a 25% improvement, year over year. This increase is, perhaps, even more impressive as the average Cost per Click (CPC) for advertisers declined, y/y by 7%. The Google Sites segment performance for paid clicks were up 33% y/y.
While Pichette did not offer any metrics as to the level of customer satisfaction with Google’s paid click products, it is likely safe to assume customers are increasingly more satisfied with their return on investment in this type of online promotion. Further, if Google’s performance for the 2nd quarter, 2014, can be seen as consistent with long term trends, apparently click product consumers are deciding to place more ads on Google sites, perhaps at the expense of the Google Ad Network.
This writer has first hand experience with the substantial effort Google has made, over the last 3 years, building a support apparatus for these click products, having been a participant in the Google Agency program. So, from this perspective, the success of these products over the quarter covered by the report is credible. Given Google’s cash on hand, it is probably safe to assume these efforts will continue, and will be further refined to produce even better results, going forward.
But the question looms even larger, post these quarterly results, as to the justification of Google’s market capitalization (approaching $400 Billion, US). As published earlier in this blog, the entire estimated size of the global advertising market cannot support this valuation if the dominant revenue driver is click advertising sales. Neither does the argument “they’ve got the cash, they’ll eventually get it right” hold up, in this writer’s opinion.
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