Google's revenues of $1.9bn disappoint markets

Internet giant Google disappointed the markets despite reporting revenues of $1.9 billion (€1.57 billion) for the fourth quarter to the end of December last. That was an 86 per cent increase on the same period last year and a 22 per cent jump on its third-quarter revenues of $1.578 billion.

Google reported total revenues of $6.139 billion for 2005, an increase of 92.5 per cent on 2004. Net income for 2005 increased to $1.465 billion, from $399 million in 2004.

Despite Google chief executive officer Eric Schmidt saying he was very happy with the results, Google shares fell over 10 per cent in after-hours trading. It finished at $401.78 per share in New York, down 30.88 points, or 7.14 per cent on the day

The total value of revenues shared with partners - what Google calls its "traffic acquisition costs" - grew to $629 million in the fourth quarter, but as a percentage of total advertising revenues, it actually fell to 33.2 per cent. According to John Herlihy, director of online sales and operations with Google in Europe, Middle East and Asia, this was not part of a strategy by Google.

"My guess is that it was the way the market went," says Mr Herlihy. "If it goes that way for three or four quarters in a row, I think we know we have a trend."

Google's Irish operation, which employs 700 in Dublin, and which is expected to grow to 900 by next autumn, are involved in sales and marketing for Europe, the Middle East and Africa. It also provides a number of other supports to customers of its AdWords advertising programme, publishers who display Google ads or search content on their website and users of all Google's sites and products.

Last year, US commentators suggested Google was attracted to Ireland purely because of the low corporate tax rate and the ability of avoiding US taxation. In its earnings release, Google said its effective tax rate for 2005 was 31.6 per cent and it expected this to drop to 30 per cent next year.

Mr Herlihy rejected any suggestion that the company was primarily here for tax purposes. "We have 700 people here - you don't do that for a fly-by-night," he said. "You don't make that type of investment unless it's true meaningful business and a critical element of Google's global platform. The tax is an added benefit rather than a key driver."

Although Google does not break out financial data for Ireland or Europe, revenues from its non-US operations have been growing as a proportion of its overall business. They accounted for 34 per cent of total revenue in 2004, but this grew to 39 per cent last year.

Mr Herlihy said there was still plenty of scope to grow European revenues through introducing new technologies and products but also by customer acquisition as more countries join the EU.

"We're pretty happy that we've got a good takeup and a good usage in Ireland," said Mr Herlihy. In March, Google will host an "open house", where it will invite Irish advertising agencies and major publishers to come in to find out about what services Google can offer them.