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Saturday, April 22, 2006

Engineering Profit

Last quarter, I argued in this space that a lot of analysts were underestimating Google. Many spoke of a slowdown and of other woes besetting the company. In a few private conversations with institutional investors, I shared my personal opinion that Google had taken several hard steps in 2005, culminating in the ad quality initiative of late summer and into the fall, that would probably slow revenue growth a bit short term, but set the ad program on a healthy footing. It would take some low priced ads off the system, and force some advertisers to pay more for ads, so the profit margin would eventually rise. That, to me, looked like a move designed to impress Wall Street (eventually), although it also impresses users of the search engine. It's funny how long term growth and taking tough steps to address weaknesses in your company always go hand in hand.

Anyway, I felt bad about this view for awhile because -- on the strength of my comments alone ;) -- the stock of Google surged prior to last quarter's earnings announcement, and then tanked when they didn't live up to expectations.

Yesterday the Google earnings announcement came out for Q1 of 2006, and it was a "blowout" - a real bounce-back from the previous mild disappointment. It looks like all that table-setting did pay off after all, and advertiser confidence in the program continues to be strong and growing. Of note is the significant revenue growth that has been added through new international operations. Fully 42% of Google's revenue is now from international sources.

It's hard to imagine how any company could perform any better financially than this massively scalable international online juggernaut has done in recent quarters.

Hate to beat a dead horse, but this -- and by "this" I mean make their Yahoo Search Marketing platform more scalable and stable and sensible -- is what Yahoo needs to do, instead of constantly changing the subject. Doing this would go hand in hand with scaling their human team internationally. You can't build a global village with straw and spaghetti code.

Posted by Andrew Goodman




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