It seems Google is human after all – just barely. For the first time in its short history as a public company, revenues fell last quarter as advertising woes dented its cash cow search advertising business. But Google didn’t have to work very hard to boost its margins and keep earnings chugging along. Google has ample room to weather the downturn by varying its costs and increasing its dominance.
The search giant brought in $5.51bn of revenues last quarter, just shy of Wall Street’s expectations and a 3% decrease from the quarter before. That’s the first time Google’s top line has fallen in the four years since its initial public offering.
The drop-off comes as advertisers are spending less money online, especially in once-key segments like the automotive and financial industries. Indeed, Google’s Adsense advertising program saw its revenues fall 3% compared to the same period last year.
But the chinks in Google’s armour are still microscopic. Despite its slowing revenue base, the company became more efficient, bumping its operating margin by 1 percentage point to an impressive 34%. It did so while only losing 58 jobs out of more than 20,000 in what looks to have been one of the worst quarters for US employment in a generation. That led to an 8% annual increase in earnings despite the revenue slowdown.
And Google’s free cash flow last quarter was a whopping $2bn, boosted by its fourth straight quarter of lower capital expenditures. All of this underlines the variables Google has to insure stable profits without sacrificing its competitive position.
In fact, Google’s near-monopolistic search share keeps growing. Its share of US searches last month was almost 64%, its highest share yet and well above Yahoo and Microsoft’s shares of 21% and 8%, respectively, according to Comscore.
Google’s hefty cash flow and fat margins will allow it to continue reinvesting in its dominant search business. Of course times may get tougher yet. But Google has barely begun cutting the fat, which it could do if necessary. Google may not be the unstoppable money machine that investors valued it at a few years ago. But to its competitors, it probably still feels like one.