Blog Post

Google revenues fall for first time ever - House prices to blame


Google is reporting that revenues fell compared to their previous quarter. This is the first time that Google has reported a quarterly fall in total revenues in their history. However, they are officially reporting a 9% growth in profits and 6% revenue growth. I guess they are using a different comparison time period to come up with those revenue numbers. To me, the quarter over quarter statistic is more interesting.

Google has been moving aggressive to cut costs in the face of this difficult economy. Even the Internet search engine giant has felt the effects of slowing consumer demand and decreased spending on advertising. When consumers buy less, retailers and ecommerce players have less to spend on advertising. Internet advertising has become an increasingly large portion of overall advertising spending. As those marketing budgets have been cut to contain costs, spending on search engine ads has also been reduced. This hurts firms like Google, Yahoo and MSN.

While much of Wall Street has been optimistic over the last 5 weeks, resulting in a 35% run-up in Google's stock, the numbers concerning retails sales were extremely weak again yesterday. Additional numbers on the housing market also showed that the we have a long way to go until recovery. While the number of houses being bought have picked up pace over the last few months, the number of foreclosures has risen more quickly. This means that the inventory of unsold homes has grown, making further price declines likely. This relates to Google, in a round about way.

When people feel their homes are worth less, their overall feeling of wealth declines. This motivates them to save more. More saving, while good for the country overall, is bad for our consumer-driven retail economy. As mentioned, lower retail sales mean lower spending on advertising - including Google ads. Google Chief Executive Eric Schmidt said in a statement related to most recent financial performance that he sees no end in sight for the recession.