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10/19/2006
  Google Q3 2006 - Early Days of a Monopoly
Google's Q3 '06 results were another stellar performance, looking even stronger relative to Yahoo's weak Q3 results

Google made $1.87B in revenue for the quarter, up 70% from Q3 2005, and up 10% from Q2 '06.

Their free cash flow was a staggering $512M (compared to Yahoo's $288M).

One scary number: Google employed 9,378 employees as of September 30, up from 7,942 as of June 30. That's employee growth of 18% in one quarter! They hired an average of 19 people per work day.

Google continues to spend a ton on capital expenditures, but George Reyes, the CFO, claims that the free cash flow "easily" covers the CAPEX. Google says that CAPEX spending growth will outpace revenue growth for the next few quarters.

The analysts on the conference call seemed more obsessed with video ads, which can't possibly be having ANY significant impact on Google's results, but there were a few questions about CAPEX. Larry Page (!) responded to a question about how much would be needed to support video ads - saying that Google already has plenty of cheap bandwidth.

Another CAPEX question prompted Eric Schmidt to lecture that quote / unquote "over investment" 2 years ago allows them to be over-performing this year. He's talking down to the analysts a bit, annoyed that they don't understand the "invest in infrastructure" model.

How Google is a Monopoly:

The following moments on the call crystalized Google's stature for me:

It might be just me, but what's striking about those statements is the satisfaction that Larry, Sergey and Eric are getting from be able to behave as a monopoly provider of traffic on the internet.

Yes. Google is effectively in the early stages of monopoly. They have the scale, they have the infrastructure, and they have the partnerships.

Ostensibly, they control 25% of the advertising on the internet. But pragmatically, they are the player that you must spend 80% of your attention on, if you want to get anything done.

 


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