Digging into Google's Q3 metrics

Search giant's latest results show a company firmly in growth mode

Google Inc. released its third-quarter earnings after Thursday's market close, reporting a 32 percent increase in net income to $2.17 billion and a 23 percent increase in gross revenue ($7.29 billion) from last year's Q3.

Google shares (NASDAQ: GOOG) soared in Thursday's after-hours trading, and continued showing strength in Friday's regular trading, with investors pushing the stock up 55.46, or 10.3 percent, to 596.39 by late morning.

Beyond the top-line numbers, how did Google perform in Q3? Here's a look at some key metrics as detailed in the company's earnings release, and a summary below:

* Google-owned sites generated revenue of $4.83 billion, or 67% of total revenue, a 22% increase over Q3 '09 revenue of $3.96 billion.

* Google partner sites generated revenue (through AdSense programs) of $2.2 billion, or 30% of total revenue, also a 22% increase from year-ago quarterly revenue of $1.8 billion.

* Revenues from outside the U.S. totaled $3.77 billion, or 52% of total Q3 revenue, compared to 52% in the second quarter of 2010 and 53% in the third quarter of 2009.

* Aggregate paid clicks (clicks related to ads served on Google sites as well as the sites of Google AdSense partners) increased 16% over Q3 2009 and 4% over this year's second quarter.

* Average cost-per-click (clicks related to ads served on both Google and Adsense partner sites) rose 3% over last year's Q3 and 2% over Q2 of this year.

* Traffic acquisition costs (the portion of revenue Google shares with partners) were $1.81 billion, compared to $1.56 billion in the third quarter of 2009. As a percentage of advertising revenue, TAC was 26%, compared to 27% in last year's Q3.

* Other cost of revenues (data-center operation expenses, amortization of intangible assets, content acquisition costs, credit card processing charges, etc.) increased to $747 million from $667 million in Q3 2009, but dropped as a percentage of revenue to 10% from 11%.

* Operating expenses (other than cost of revenues) were $2.19 billion, or 30% of revenue, compared to $1.64 billion, or 28% of revenues, in the year-ago quarter.

* Cash on hand (cash, cash equivalents, and marketable securities) was $33.4 billion as of Sept. 30.

* Google employed 23,331 full-time workers as of Sept. 30, up from 21,805 full-time employees as of June 30, 2010, a 7% increase in just three months.

So what does it all mean? The obvious take-away is that Google clearly is a company in growth mode. More people are clicking on their ads, which in part reflects the recovery of online advertising as consumers begin to at least think of spending more. And while Google's share of online searches appears to have stalled out in the 65% to 66% area, revenue continues to climb. Unlike, say, Yahoo.

The company also is growing in an area that's becoming increasingly critical -- mobile ads. Google said revenue from its mobile business is on track to contribute more than $1 billion annually.

Google's growth also is reflected in its higher payroll, which has raised some red flags with some analysts. I don't see anything to worry about here. If you want your company to keep growing, at some point you need more employees. Let the analysts fret; realistic companies understand this.

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