Posted by Tom Foremski - October 24, 2007
The most interesting thing about Google's recent quarterly financial report is why there has been virtually no coverage of a fascinating fact in its third quarter numbers.
But apart from myself and Mr Munarriz, I don't see any of the many-hundred-strong Google press corp investigating a fascinating and potential troubling aspect of its business: Did GOOG beat analyst estimates by fixing the payout to its AdSense partners?
The third quarter numbers clearly show that It kept an extra $24m this quarter compared with three months ago.
I wondered if this was an example of "cookie jar" accounting (which isn't illegal . . . ), in which companies can draw on various financial resources to help them meet Wall Street analyst numbers.
I'm still waiting for an answer.
Let me explain: The key number I look for is Google's Traffic Acquisition Costs (TAC), which is a very large number: $1.2bn in the most recent quarter. Nearly all of that goes to its AdSense partner publishers.
But compared with the prior 3 months, Google reduced the rev share with publishing partners to the tune of about $24m.
In the second quarter Google paid out 78.62% of AdSense revenues to publishing partners or $1.063 billion.
In the third quarter Google paid out 76.70% of AdSense revenues to publishing partners or $1.116 billion.
The difference is about $24m which helped Google beat its earnings estimates. Did GOOG change the ratio of payouts to AdSense publishers to help boost its earnings?
From: ZDNet: IMHO
I looked at the transcript of the earnings conference with Wall Street analysts for some clarity. There was only one analyst that asked about the change in the TAC number and Google's top execs skirted the answer. Take a look:
[Posted from: "Seeking Alpha."]
Benjamin Schachter - UBS
If I'm reading the TAC rates right, it looks like the partner TAC went down pretty meaningfully, and then the TAC associated with Google.com went up as a percentage of revenue. I'm wondering if you could comment on those trends. . .
. . . Eric E. Schmidt
Why don't we talk about TAC rates? George, do you want to start that?
So our AdSense TAC went down slightly, but on the other hand, Google.com TAC went up, and primarily driven by the partner mix.
Eric E. Schmidt
Our next question.
From: Google Q3 2007 Earnings Call Transcript
So, are Google AdSense partners going to be squeezed in the future for the benefit of Google meeting Wall Street numbers? Google needs to explain what is going on otherwise the consequences could be unpleasant for its shareholders.
If GOOG can, and has squeezed AdSense partners, is this a good thing for GOOG investors? AdSense brings in 34% of total revenues, and most AdSense partners could switch advertising networks in three clicks or less . . . [MSFT is waiting, willing, and able.]
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