Google Search Still Bringing In The Bucks

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Google reported revenue gains Thursday, along with deals that helped them get there. During the quarter, Omnicom Media Group made a commitment to Google to increase spending on display ads through the search engine's auction system and co-develop a trading desk, traditional brand advertisers like Procter & Gamble began to embrace paid search, and more than 160,000 Android devices activated daily.

The browser, which enables search and paid-click ads, is the most popular application on Android devices. The combination of people browsing on smartphones connected on fast networks is the formula in which Google succeeds. In fact, search on Android mobile devices continues to surge, about 300% in the first half of 2010. Google in the quarter activated more than 160,000 Android devices daily, up from 65,000 sequentially.

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Most of the devices have been developed independently of Google, so it's not a huge resource investment and produces a formidable return. Still, the Android Market has 70,000 apps -- up from 30,000 in April, according to Jonathan Rosenberg, Google senior vice president of management.

Google also now indexes organic search results with a faster technology called Caffeine. When Google's bots identify a new Web page, video or other content, Caffeine adds it to the index twice as fast. More than 100 quality search improvements were made in the quarter.

These upgrades helped Google report that revenue for the second quarter 2010 rose 24% from the year-ago quarter to $6.82 billion in Q2 2010, but missed analyst targets. Based on the GAAP accounting standards, net income for Q2 rose to $1.84 billion -- or $5.71 a share -- from $1.48 billion, or $4.66 a share, in Q2 2009.

Google-owned sites contributed 66%, or $4.5 billion, to total revenue in the second quarter. This represents a 23% increase compared with Q2 2009 revenue of $3.6 billion. Partner sites generated through the AdSense program were at $2.06 billion, or 30% of total revenue -- up 23% compared with second-quarter 2009, which brought in $1.68 billion.

Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of AdSense partners, increased approximately 15% over the second quarter of 2009 and decreased approximately 3% over the first quarter of 2010.

The vast majority of Google's revenue growth comes from search, but there's lots of room to expand, especially as search text-and-pictures come together on PC and mobile, according to David Hallerman, senior analyst at eMarketer. "That growth is still a one-sided deal, even with mobile revenue, which is mainly search," he says. "It is likely part of the reason the Googlers on the analyst call like to focus on display as a potential area for positive growth, since Google needs display advertising dollars to balance the company's revenue."

Kevin Lee, chief executive offer at Didit, believes that lack of diversified product offers has kept Google's stock from rising lately. The stock has been stuck at around or below $500 per share since the end of May.

Google's core paid-search revenue will probably continue to grow in the teens domestically -- and perhaps, if there is a global recovery slightly more overseas for the next several years, Lee says. "But the search engine doesn't have a second product ready to make a material difference in their overall revenue and earnings," he adds.

Apparently, that's what it takes to move the stock -- but "in the meantime, the overall industry can congratulate itself that we have a product like paid search that works so well it grows dramatically even in weak economic times," Lee says.

Google sites remained No. 1 in the U.S. for the search market in June with 62.6% of searches, followed by Yahoo sites at 18.9%, and Microsoft sites rose 0.6% points to 12.7%, according to comScore data released Tuesday. The data firm attributes gains for Yahoo, 0.6 percentage points, and Microsoft, 0.6 percentage points, in part, to contextual search that ties together content and related search results. Ask Network captured 3.6% of the search market, followed by AOL with 2.2%.

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