Commentary

Will Google Cofounders' Riches Rise In 2010?

page and brinIf you haven't had time to catch Forbes' Billionaires list, here's a quick run-down.

Microsoft founder Bill Gates, worth about $53 billion, slipped in the ranking to No. 2. This year Mexico's Carlos Slim took the No. 1 spot on the list, with an estimated fortune of $53.5 billion.

Forbes estimates the world's billionaires this year have an average net worth of $3.5 billion, up $500 million in 12 months. Last year, U.S. economic conditions weakened to the worst since the Great Depression, but the wealthiest got richer. Americans account for 40% of the world's billionaires, down from 45% a year ago.

Forbes counts 1,011 10-figure titans worldwide, up from 793 a year ago, but still shy of the record 1,125 in 2008. Of those billionaires on last year's list, only 12% saw their fortunes decline.

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There are quite a few people between Gates and Google's founders Larry Page and Sergey Brin, who both rose in the rankings, tying at No. 24 on the list, up from No. 26 last year. Forbes estimates Page's and Brin's worth at about $17.5 billion, up $5.5 billion in 12 months.

But as the first quarter of 2010 winds down, not all news remains positive for Google or online paid search advertising. On the down side, Gene Munster, senior research analyst at Piper Jaffray, released a research note late Thursday that tracks third-party paid search data.

But as the first quarter in 2010 winds down, not all news remains positive for Google or online paid search advertising.

"Our down 5% sequential expectations are based on the relative strength of the holiday quarter and may prove conservative, as paid clicks were up in Q1 of last year despite the quarter being the height of the advertising slowdown," Munster wrote in a research note. "If typical historical trends hold, we believe paid clicks could end flat, which would benefit revenue by 2%."

Munster says that March is typically a stronger month than February for paid search. Paid clicks were 9% up sequentially then in 2009. Taking that into consideration, he believes the quarter for Google will actually end flat, rather than down by 5%. In that case, "our revenue estimate would benefit by 2%, rising to $5.2 billion from $5.1 billion and PF EPS would benefit by 2%, rising to $6.70 from $6.54," Munster writes.

In that case things might be looking up for the two Google founders. Their riches could rise by year's end. Broadpoint.AmTech analyst Ben Schachter released a research note estimating Google's gross margin "may rise substantially throughout 2010 and 2012, up 330bps from 85.5% in 2009 to 88.3 in 2010," excluding any impact from the company's mobile phone Nexus One.

"The bottom line is that with the help of a depreciation table, it is clear that the lower capital expenditures of the past 18 months will significantly benefit [Google's] near-term gross margin," Schachter writes."[We] think the gross margin improvements give [Google] significant head room in terms of hiring while still expanding operating margins."

3 comments about "Will Google Cofounders' Riches Rise In 2010?".
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  1. Amin Haq from Media Flint, March 12, 2010 at 3:04 p.m.

    Google's gross margins are predicated on a large part on advertiser competition. Google does not set pricing for its product. The market does. If Advertisers see profitable conversions, they bid up keywords right up to the point where incremental conversions stop yielding profit.

    The experiment with "pay per call" on mobile networks may yield a tidy profit but the big bulk of Google's profit is still in PPC advertisements. The company needs to convince and educate many of its new and old advertisers the many different ways that the Search channel may be used to acquire clients. In this respect, Google has done a poor job.

  2. Jeff Martin from Sales Driven Marketing LLC, March 12, 2010 at 3:28 p.m.

    There are multiple reasons why avg. CPC's came down lately; however, two of the bigger reasons I'm guestimating include the bust of auto and home sales.

    A big chunk of Google's ppc revenue I'm sure came from mortgages (e.g. refinance and home equity loan related keyword terms) and auto buying related terms. Any of these related terms before 2008 went from anywhere between $4.00 - $20.00 per click. Just think of all the banks and mortgage companies bidding on the term "home equity loan."

    Will Google's profits go down? If they made it through the Great Recession with a $500+ stock, and profits stabalized to climbing, as the USA comes out of recession and people start buying more cars and homes again, my guess is you'll see Google's top line growth do just fine.

    Jeff

  3. R.J. Lewis from e-Healthcare Solutions, LLC, March 12, 2010 at 10:38 p.m.

    88.3% gross margin. Wholly crap...

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