By Kyle Austin
That breeze you just felt may have been caused by the collective sigh of relief in Silicon Valley and on Wall Street. Google announced strong Q3 earnings today, despite the tumultuous economy, lifting spirits in the Valley and within the Web 2.0 community – while also lifting its stock as the market closed.
I mentioned in April, when Google announced its Q1 earnings, how it has become the barometer, not only for Internet-based companies, but the economy in general. Today, the stakes were raised even higher as advertisers and those companies that depend on ad revenue (just about every Internet company) looked to use Google’s earnings report as a litmus test for the online advertising industry. Google delivered on the litmus test and gave some positive indicators for the online advertising industry in general (As long as you can provide measurable results for advertisers).
Google’s profits rose 26 percent from $1.07 billion, or $3.38 per share, at the same time last year. In addition, the Mountain View giant noted that it would have made $4.92 per share, surpassing street estimates of $4.75.
Google’s CEO Eric Schmidt took little time getting to the ROI that Google is providing for marketers in the downturn. In fact, in the release that Google issued shortly before their conference call at 4:30 p.m. ET today, Schmidt’s opening statement coupled this messaging with the overall growth for the quarter:
“We had a good third quarter with strong traffic and revenue growth across all of our major geographies thanks to the underlying strength of our core search and ads business. The measurability and ROI of search-based advertising remain key assets for Google.”
He echoed this written statement by opening up the call with this observation on how Google can thrive, despite shrinking marketing and consumer budgets, which Google Economist Hal Varian has dubbed the “Wal-Mart Effect” :
“We believe that these results reflect the fact that as marketing budgets are squeezed, targeted, measurable leads are becoming more valuable to advertisers. As consumer’s budgets are squeezed, people use the Web for comparison shopping to hunt for bargains online and in stores.”
Google also used the results to illustrate that they aren’t a one-trick pony when it comes to online advertising (As some have hit on their reliance on search / text ad revenue). Earlier in the day, Google quietly named former DoubleClick CEO David Rosenblatt President for Global Display Advertising (a new position). Miguel Helft of the New York Times surmised on the Bits Blog that this may indicate a bigger push into the display market.
Schmidt added on the conference call that Google will look to help the display market “by improving targeting, which will improve ROI for advertisers.” He also hit on what they’ve done in monetizing YouTube over the last quarter through its ad networks, by noting 90% of the content on YouTube is now ad supported.
Finally, Sergei Brin added this nugget on the display advertising opportunity later in the call:
“On the display question, there are many opportunities. Let’s not forget, with AdWords and predecessors to AdWords, it took many years to catch up and show the power for advertisers in search-based advertising. I think it could take awhile to mature with this new (display) model. It’s about showing the right ad to the right user, at the right time. You may not want the return to be a click but generating awareness. You want to reach the right people. It is an area that is ripe for innovation and we can create great tools for display. Not just banner ads, but AdSense for games and videos. It’s a big opportunity.”