By Andrew Goodman, 4/30/2004

It may be awhile before the stock actually trades, but forced disclosure now gives us access to the key numbers for how the company did in 2003. Answer: pretty good.

Revenues: $962 million
Net income: $106 million

Percentage of revenues accounted for by advertising: 95% in 2003, 96% in Q1 '04.
The first quarter of '04 is positively eye-popping: $390 million in revenue, $64 million in net income. This is a company on track to do $1.8 billion in business in 2004 only six years after launching. It's only been earning any revenue worth mentioning for two years, since the pay-per-click version of AdWords launched in February 2002. The competition must be drooling. Little wonder Google didn't want to disclose details. Some reflections on the above numbers:
The revenue figure comes in slightly above the $800-900 million figure most analysts have been conservatively estimating for months. The accuracy of the estimates is no huge surprise. Analysts are smart. They also hear things. But it's only been for a short time that we've been hearing that number. It wasn't long ago that the number being bandied about was $300 million. Suddenly, seemingly all at once (but following the lead of a couple of well-known analysts), that number became $800 million - $1 billion. Personally I had always said it had to be higher, in the $1 billion range. The calculation, though rudimentary, goes something like this. Assume conservatively that only 50,000 of the 150,000 advertiser figure publicized by Google are active advertisers. Just throw out the rest. Then figure on an average dollar figure per year. That's tough, since some larger advertisers think nothing of spending $50,000 per month. But based on my experience with different kinds of advertisers, I figured $10,000 would be low as an average annual spend, and $20,000-25,000 was more in line with the middle ground. 50,000 X $20,000 = $1 billion.

It really doesn't get much more complicated than that, since, as noted above, 96% of Google's revenues come from ads. You'd be shocked at how many times I'm asked how Google makes its money, even by fairly plugged-in questioners. Yes, people may have noticed the ads, but they don't assume those are responsible for the "big money hype" they're hearing now. That needs to be explained to them... and can be quite easily done in the back-of-the-envelope format as above.

Moving on, this all gives us an interesting, elegantly simple answer to the question which is now officially The Big Recurring Google Question for the financial press. Where will the company's growth come from? To play devil's advocate, as I did when I discussed this one yesterday with a reporter doing background research on the Google growth issue, it looks like Google could fairly quickly get to $3 billion simply by continuing to do what it's doing. New advertisers enter the auction every day, and existing ones become more comfortable with the amount spent. Google is expanding its ad distribution, too. Based on the huge assumption that Google Search itself continues to be a favorite of users, Google the company could grow to about the same size as a Yahoo ($2.1 billion in revenues and currently very profitable), or even larger. There should be strong growth for both, in any case. This will inevitably level off, but not for a couple of years yet. Localized/regional listings, for example, are brand new. And for its part, Yahoo has only just begun to see its diversification into fee-based income pay off.

And therein lies the answer to the other big question that will be asked in roundtables and on CNBC this year: what's Google's biggest, most pressing challenge? Roll together common sense with the real threat that trademark and patent cases pose to the 96% of Google's revenue that comes from ads, and it's plain that Google must diversify its revenue stream. Its path is looking very much like Yahoo's, but with fewer blinky-blinky banners and less broadcast-paradigm mysticism about the ad business to bog it down. Google has the benefit of hindsight. It can do what Yahoo did -- leverage its huge popularity into a solid, diversified cash flow machine -- more quickly, without bleeding tons of cash in the learning phase. Enterprise search and other techie conceits are a red herring here, as they were for Yahoo, AOL, etc. Google's also run into huge roadblocks in going with its first instinct on diversification: the filings reveal that 80% of ad revenues are coming from Google Search itself, and that it actually loses money on some of its distribution deals! So when people wonder what the heck Google is up to with Orkut and GMail, and with whatever else they might roll out next year, one answer is that they've got to diversify. They've got to figure out how to get people to pay fees for useful stuff. Orkut has many features, but the analogy can be drawn at least in part with Yahoo Personals. At some point, you can charge for it. The same goes for the ultra-premium version of GMail.

Congratulations, Google, you're no longer just a search engine. You're also a big company. A brand. A hero. A paraiah. An employer. A potential acquirer. An icon. A friend, an enemy, all rolled into one. Feels weird, huh? Oh, you say you're used to it by now. Sure, same here.