Yahoo braced the world and its investors at a Goldman Sachs investment conference last month when Yahoo CEO Terry Semel told investors that a slowdown in advertising in the automobile & financial channels may hurt Yahoo stock.
Google, on the other hand, went out an paid $1.65 billion (in stock) for YouTube.
One does not have to read too far between the lines to see that the stage had been set for two incredibly different third quarter earnings reports from the two search media companies.
CEO Reaction : Terry Semel and Eric Schmidt
I really think that the statements from the CEO’s at each company sum up the entire comparison between 2006’s third quarter earnings reports from Google and Yahoo. Who do you think made each statement?
“We are not satisfied with our third quarter financial performance” vs. “Our third quarter results are a testament to the strength of our network of advertisers and partners”
Here’s the answer:
Terry’s press release quote : “While we are tremendously excited about many things happening at Yahoo!, we are not satisfied with our third quarter financial performance. We continued to grow and believe that we outperformed the graphical market but not at a rate that met our expectations, said Terry Semel, chairman and CEO of Yahoo!. Looking forward, we are excited about the roll-out of our new Project Panama advertising platform. In addition, we plan to invest, innovate and secure leading positions in the areas where we see the biggest growth opportunities. We know we have work to do, but we are confident that Yahoo! has the talent and resources to strengthen our leading position on the Internet, capitalize on the huge growth opportunities ahead, and deliver significant returns for shareholders.”
Eric’s quote : “Our third quarter results are a testament to the strength of our network of advertisers and partners, as well as our continuing focus on users,” said Eric Schmidt, CEO of Google. “We were particularly pleased with the contributions of our international business in a seasonally weaker quarter. In addition, we continued to forge significant partnerships with companies such as eBay, Fox Interactive Media, and Intuit that will be of great value to all involved.”
Of course, Yahoo also has a rather large, if not larger partnership with eBay. But when you’re not showing the numbers your company is expected to, there’s no reason to pull your partners into the mess. Dr. Schmidt on the otherhand, spreads the wealth by trumpeting the strong alliances Google has made (note : YouTube acquisition is missing as it should not take place until Q4 2006).
Quarterly Revenue Google vs. Yahoo
Google : Revenues were $2.69 billion for Q3 2006, an increase of 70% compared to the third quarter of 2005 and an increase of 10% compared to the second quarter of 2006.
Yahoo : Revenues were $1.58 billion for the third quarter of 2006, a 19 percent increase compared to $1.33 Billion for the same period of 2005.
The POWER of AdSense
Google brought in $2.69 billion from the AdWords program, both search ads and contextual ads. Yahoo brought in a total of $1.37 billion from its Yahoo Search Marketing & Yahoo Display Advertising divisions. Google brought in double of what Yahoo did in Q3 advertising sales.
Of Google’s total revenue, $1.63 billion came only from AdWords; roughly $300 million more than all of the different types of online advertising that Yahoo sells.
As a bonus, AdSense delivered $1.04 billion in Q3 2006. One billion dollars from AdSense! “Google’s partner sites generated revenues, through AdSense programs, of $1.04 billion, or 39% of total revenues, in the third quarter of 2006.”
Contextual Advertising is no longer a darkhorse revenue generator as Google AdSense is not far from equaling Yahoo’s total marketing revenues. This is why, of course, Yahoo is pushing to upgrade and rollout a more enhanced Yahoo Publisher Network once ‘Project Panama’ is fully functional.
Of course, all is not lost for Yahoo as the company readily admits that it is behind the game in Search Marketing and banking on the success of the new Yahoo Search Marketing:
“Although we faced unanticipated challenges in the third quarter, we continued to generate strong year-overyear increases in both revenue and free cash flow, on top of an already very large base, said Susan Decker, chief financial officer, Yahoo!. Our profitability and cash generation remain strong, and we will continue to be disciplined by investing in assets we believe will enhance user experience and generate strong returns for our employees, partners and shareholders.”
Google on the contrary is not playing catch-up and seems to be just beginning to branch out in increasing its grip on the current 25% of online advertising spent within its AdWords properties per year.