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.