What Can Google’s Earnings Tell Us?

By January 20th, 2009

For most AdSense publishers, Google doesn’t disclose how much of the AdWords revenue they keep and share.  One thing I always look for in Google’s earnings announcement is their TAC (traffic acquisition cost) as a percent of their advertising revenues.  If the TAC percentage falls, it generally means that Google is keeping more revenue.

Yesterday, there was a piece in the Wall Street Journal  that depicted two stories on search revenues.  Efficient Frontier, a paid search management firm, pegged U.S. search revenues down 8% in Q4 in 2008 over the final quarter of 2007.  Other analysts are projecting double-digit search revenue growth in the 4th quarter for Google, specifically, and eMarketer, looking at the current year, has projected double-digit growth for 2009 at 14.9%.

If Efficient Frontier is right and search ad dollars are shinking, it’s highly likely that contextual ads will shrink as well.  Compound the shrinking ad spend with Google keeping a bigger share of its ad revenue and this could be a significant reduction in earnings for publishers.

If the TAC holds, and revenue growth is up, the decrease in earnings some publishers are seeing is more likely caused by the industry they cover.  For example, if your site focuses on financial, autos, or real estate segments, these areas have been hit particularly hard in the economic downturn we’ve all been experiencing, and that’s been particularly true for advertising in them (also mentioned by Platform-A’s Mike Peralta).

So, we’ll be watching Google’s earnings this Thursday for these two key indicators.

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This entry was posted on Tuesday, January 20th, 2009 at 4:22 pm and is filed under Online Advertising. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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