Google Posts Record Fourth Quarter Profits

Google reported revenues of $3.21 billion for the quarter ended December 31, 2006, an increase of 67% compared to the fourth quarter of 2005 and an increase of 19% compared to the third quarter of 2006. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the fourth quarter of 2006, TAC totaled $976 million, or 31% of advertising revenues.

“Our impressive performance in the fourth quarter demonstrates the continuing strength of our business model across Google properties and those of our partners,” said Eric Schmidt, CEO of Google. “Our growing organization allows us to deliver ever increasing amounts of information and content to our users both through investments in search and ads as well as through strategic partnerships.”

The strategic partnerships Schmidt is talking about deals mostly with the AdSense network. Many webmasters deride Google for not clearly stating what their revenue share with publishers is. However, that number can worked out by looking at their financial statement – it’s under Traffic Acquisition Costs and Google Network Revenues.

TAC – Traffic Acquisition Costs, the portion of revenues shared with Google’s partners, increased to $976 million in the fourth quarter of 2006. This compares to TAC of $825 million in the third quarter. TAC as a percentage of advertising revenues was 31% in both the fourth quarter and the third quarter.

Google Network Revenues – Google’s partner sites generated revenues, through AdSense programs, of $1.20 billion, or 37% of total revenues, in the fourth quarter of 2006. This is a 50% increase over network revenues of $799 million generated in the fourth quarter of 2005 and a 16% increase over third quarter 2006 revenues of $1.04 billion.

The AdSense network generated $1.2 billion in the last quarter and Google paid out $976 million back to the network partners. That means Google is paying out 81.3% of AdSense income. To an AdSense publisher, that sounds really great, but it’s not the entire picture.

Google has some really large corporate AdSense partners (AOL, MySpace, FireFox, etc.) which can make the Internet’s Biggest Google Whores look like peons. These corporate partners take a much bigger share of AdSense revenue than the average publisher. And since their volume is so great, they can skew the revenue sharing percentage – if Google gives 80% to AOL and 1% to me, then the average would still be 80%. It is speculated that the payout for the average publishers is somewhere between 40 – 80%.

Google’s advertising money train shows no signs of stopping and has really padded their war chest. As of December 31, 2006, the company had $11.2 billion sitting in cash and short-term investments. That’s not exactly pocket change.

26 thoughts on “Google Posts Record Fourth Quarter Profits”

  1. Carl says:

    And despite all this, their shares dropped

    1. HMTKSteve says:

      You beat me to it!

    2. Nomar says:

      Yeah, Imagine how big others are growing to.

      1. Allen.H says:

        “”People were expecting unreasonably lofty results,” said Standard & Poor’s analyst Scott Kessle…”

        Google is over performing (I don’t think that’s a healthy term to use) yet they are still overrated by their own investors, something that isn’t very good.


        1. Alex Becker says:

          Yes people were expecting a lot. maybe they should just be happy with what they got.

  2. Ryan says:

    Those are some pretty impressive numbers.

    If only we could get median data out of them, because as you said I bet those large companies dwarf everyone else.

  3. Marc says:

    I know, the drop is disappointing. Silly optimists overreaching…

    On the bright side, it’s a fantastic number for the Internet industry as a whole. Turning over a billion dollars in a quarter shows that the wheels of e-commerce are turning and that advertising online works. A nice positive story from where I sit as a publisher selling ad space 🙂

  4. Alex Becker says:

    Out of that $976 million $10 is mine. lol. Hey John how come theres a delay sometimes when posting comments?

  5. Marc says:

    Off topic, but it looks like the top commentators is a monthly list? Very interesting. Nice way to shuffle the deck every now and then John.

    1. Jane May says:

      I found this out last month. It’s a great way to give people a chance to be on the commentators list. Very creative!

      1. HMTKSteve says:

        If only he would add in a 5 minute delay in between individuals posting comments…

        1. Alex Becker says:

          There sometimes is a delay when I post a comment. Just sometimes.

  6. Stephen says:

    As long as they make money, that makes me happy. That means that they have money to pay me every month. Go Google! 😀

    1. Alex Becker says:

      I made $1.47 with Google last month. I think they got it covered. I hope 😀

      1. Marc says:

        You’re waaaayyy behind Alex, I’m making upwards of $5 a month!

        1. Alex Becker says:

          Jerk. Have to rub it in don’t you

  7. Kenny says:

    One has to wonder how long this Google freight train will keep going. As a publisher, as well as an advertiser that relies on Google to provide a significant number of leads, I sure hope it continues steady.

    1. Marc says:

      I’d guess that they’re going to continue so long as e-commerce on the web continues to do well. So long as there’s commerce, there will be advertising. So long as there’s advertising, there will be publishers fighting to provide a good advertising platform.

  8. Jane May says:

    It looks like Google is the monster we all thought they were. In no time they should be monopolizing many of the adsense, search engine, and who knows what else. But hey, they bringing home the $. Who can argue with that.

  9. Nomar says:

    That are some impressive numbers. What a money. This is unreal

  10. Allen.H says:

    Now I know where where my eCPM went!…lol


  11. Jeff says:

    Google.. they seem like they can take over teh world.

    I like how Google offers referral ads – I’m talking about the Firefox download ads. They are awesome for makign money off of, and also good for getting people to use Firefox more.

  12. Nate W. says:

    Now is the time to invest in Google. I am going to buy 10 shares immediately.

  13. gaman says:

    Regardless of what Google pay out is, it does not mean much to small publishers. I think smart pricing is in full force. As a result, most will only make a few cents per days despite many clicks their ads get.

  14. Raghu CS says:

    Definitely a great set of numbers – but the question is till how long ?

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