November 18, 2004 9:47 AM PST
Google hints at slowing growth
The search leader, whose revenue reached $805.9 million in the third quarter--a 15 percent increase over the second quarter--said it does not expect to keep up a similar pattern down the road based on an "inevitable decline in growth rates" as its revenue increases."We believe that our revenue growth rate from the second quarter to the third quarter of 2004 may not be sustainable into the fourth quarter of this year and in future periods," Google noted in the SEC filing.
In fact, Google said it expects its revenue growth rate to decline over time and anticipates that there will be "downward pressure" on the company's operating margin.
Google also reported that it may experience a drop off in advertising sales as it revamps its business policies. Specifically, the company said that steps it is taking to improve the relevance of its ads, such as removing those that generate low click-through rates, could hurt its revenue.
The Mountain View, Calif.-based company conceded in the filing that it faces "formidable competition" in every aspect of its business, particularly from rivals Yahoo and Microsoft. Google highlighted the fact that Microsoft recently launched a beta version of its latest search technology and that the software maker has repeatedly detailed plans to further integrate search features into its Windows operating system.
"We expect that Microsoft will increasingly use its financial and engineering resources to compete with us," Google said in the filing. "Yahoo has become an increasingly significant competitor, having acquired Overture Services, which offers Internet advertising solutions that compete with our AdWords and AdSense programs."
In related news, Microsoft announced on Thursday that it has extended its ad placement agreement with Overture until 2006, even as the software giant builds its own array of search technologies. Under the deal, the Yahoo subsidiary is paid to provide advertising distribution services to Microsoft's MSN Web portal.
Google said Microsoft and Yahoo may have a greater ability to attract and retain Net users than Google does in the future, because its two rivals operate expansive Web portals that offer a range of content and services.
"If Microsoft or Yahoo are successful in providing similar or better Web search results compared to ours, or leverage their platforms to make their Web search services easier to access than ours, we could experience a significant decline in user traffic," Google said in the filing. "Any such decline in traffic could negatively affect our revenues."
Google had its initial public offering in August and began trading at $85. On Thursday, the stock was trading at $169.21.
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