08:00 AM

GOOG Q1 2010: Shares Fall On Higher Costs For Traffic Acquisition

Google's [GOOG] Q1 2010 financial results beat Wall Street estimates but failed to meet private forecasts, or the whisper numbers.

Richard Waters, at FT.com reported:

Google reported net revenues of $5.06bn, excluding traffic acquisition costs. Net income climbed 33 per cent to $2.18bn, or $6.76 a share, on the pro-forma basis on which Wall Street judges the company.

The consensus forecast among analysts had been for net revenues of $4.93bn, with pro-forma earnings per share of $6.56.

Google shares lost 4 per cent in after-hours trading.

Looking at the results I noticed that Google is paying out a lot more to third-parties for traffic, those costs have jumped 31% from $202m to $265m, while revenues have grown 23%.

It's costing Google more money than a year ago to gain the traffic it needs. Mozilla and Apple, receive some of this money by directing searches to Google.

There are many smaller, public companies reliant on this Google money. Any changes in Google's policy on those payouts can hurt those companies, such as Incredimail.

Also, revenues from Google's own sites seem to have stalled as a percentage of total revenues, at 66% to 67%, over the past year. This shows that Google is unable to drive more revenues from its own sites compared with third party sites carrying its advertising network.

The more revenues it can drive from its own sites, the less it has to pay out to its partner sites.