GOOG Analysis: The Massive Mystery In Google's Finances And Why This Is Bad For Publishers
Google [$GOOG] reported stellar 2011 Q2 earnings but Google's partner sites, which used to account for half of its revenues, showed a massive lag in growth.
The partner sites are part of Google's AdSense network and include large media companies such as The New York Times.
Google's own sites, such as search, gmail, etc showed 39% growth in the most recent quarter compared with the year ago quarter, to $6.23 billion.
Google partner sites grew at nearly half the rate: just 20% compared with a year ago, to $2.48 billion.
This huge disparity between the growth rates of Google sites and partner sites is without precedent for most of its history. For example, in 2010, Google sites never exceeded the growth rate of partner sites:
- In Q1 Google sites grew 20% and partner sites grew 24%
- In Q2 Google sites grew 23% and partner sites grew 23%
- In Q3 Google sites grew 22% and partner sites grew 22%
- In Q4 Google sites grew 22% and partner sites grew 24%
Yet in Q1 2011 Google sites' growth jumped suddenly and without any explanation: Google sites grew 32% and partner sites grew 19%.
For some strange reason no one has picked up on this or noticed this huge change in its business model. There is no explanation from Google or Wall Street analysts that I could find.
The analyst call seemed focused on Google+, which is not a business. It serves as distraction from what appears to be a fundamental change in Google's business model.
The payments to Google partner sites are not audited by any independent third parties. Google says it pays out about 80% of AdSense revenues it receives to its partners but not evenly. Some receive a higher percentage while others get much less than 80% because of special deals with large publishers.
This loss of growth parity with Google sites could cost Google partner sites more than $1 billion in lost revenues in 2011.
If Wall Street models expected near parity in growth levels then it's no wonder that Google has managed to handily beat analyst earnings estimates. It certainly makes new CEO Larry Page look good.
Why are Google sites suddenly growing at nearly double the rate of partner sites when they have historically maintained near parity? What changed that could have produced such a massive boost?