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4/17/2008
  Google Q1 2008 Results - Why the Bears were wrong

Google prospers while many were predicting doom.

Gross revenue exactly in line with consensus--$5.2 billion, up 42%. Net revenue $3.7 billion, slightly ahead of consensus. Non-GAAP EPS of $4.84 blew away consensus of $4.52.

I was playing golf last week with a friend who used to be CEO at a big software company, but he's not a search geek. He asked what I thought of Google.

I said Google has at least 10 more good years. They are a powerhouse similar to CSCO and MSFT of the 1990s. Financially, what people underestimate is Google's level of control of their own business. Simply put, Google has an algorithmic way to produce money. This means that when they need to, they can control monetization and produce good results.

A simple example of this is the number of search result pages (SERPS) on which google chooses not to place ads. Google optimizes total site review better than MSFT or YHOO which tend to optimize page revenue. If Google needs to be more profitable, it has a fair bit of leeway to do it.

In addition Google still has macro trends in it's favor:

One thing people underestimate is the increasing importance of search. It's value is not declining, it's usage is not going down. Search is becoming more important to the average internet user than any other function - including email.

Similarly, as everyone well knows, ad budgets of large companies are slowly moving online in proportion to the amount of time people spend on line. Those ad budgets will be playing catch up for the next 5 years, and Google benefits.

Finally, Google's competition is incompetent. Microsoft and Yahoo are so far behind in search that Google's lead is still 2 or 3 years, and growing. It's not just quality of a SERP for a given query, but brand, traffic growth, international penetration, etc.

People will talk about unsustainable growth, declining click rates, the company becoming too big, etc. Certainly those are all reasonable objections, but they are not enough to stop Google from becoming ever more dominant for the next few years.

Google surprised Henry Blodgett and much of the punditry by not falling apart in a weakening economy. I'm not that surprised given the tremendous advantages Google has.

And I think it will keep out-performing for the next 5+ years.

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