The Future Of Search: Google’s (GOOG) Big Growth Gone

Google is still a growth company but it is no longer one with awe-inspiring year-over-year comparisons. Its revenue may no longer be moving up rapidly enough to support a a price point anywhere near its 52-week high of just over $600. It closed the day at $306.50.

Thomson Reuters (First Call) had estimates for Google (GOOG) pegged at $4.95 EPS and $4.12 billion in revenues, EX-TAC, meaning that "traffic acquisition costs" are taken out.

Google reported revenues of $5.70 billion for the quarter ended December 31, 2008, an increase of 18% compared to the fourth quarter of 2007 and an increase of 3% compared to the third quarter of 2008. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the fourth quarter of 2008, TAC totaled $1.48 billion, or 27% of advertising revenues.

GAAP EPS for the fourth quarter of 2008 was $1.21 on 317 million diluted shares outstanding, compared to $4.06 for the third quarter of 2008 on 318 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2008 was $5.10, compared to $4.92 in the third quarter of 2008.

So, Wall St. could say that the company made its numbers. The market greated the news with a yawn. Shares were up $6 after hours, which is about 2%

Part of the bad news is that Google’s partner sites did not do well, but Google only keeps a portion of the money from this revenue source. Google’s partner sites generated revenues, through AdSense programs, of $1.69 billion, or 30% of total revenues, in the fourth quarter of 2008. This represents a 4% increase over fourth quarter 2007 network revenues of $1.64 billion and a 1% increase over third quarter 2008 network revenues of $1.68 billion.

Yield per click on Google’s ads may be off some, but at least consumers are still clicking on the text links. Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 18% over the fourth quarter of 2007 and increased approximately 10% over the third quarter of 2008.

Is Google’s run as a "hot" company over. Not really, but its years of astonishing growth are behind it.

Douglas A. McIntyre