The following is an excerpt from Erik Sherman | July 20, 2012 | cbsnews.com |
(MoneyWatch) With Microsoft (MSFT) and Google (GOOG) both reporting earnings yesterday, it’s impossible to avoid comparing them. At the highest level, Google would seem to be the obvious winner, with 21 percent year-over-year revenue growth and Microsoft sales rising only 4 percent. But that’s too simple a take, given that both companies are in important transitions and that, as usual, things aren’t quite as they seem.
That 21 percent hike in revenue doesn’t count Google’s acquisition of Motorola, and that’s the right way to consider it. There may be some cost savings to be wrung out, but a hardware-based business is not Google’s core. It’s an important growth area, because the search company has gotten between 96 percent and 97 percent of its revenue from ads for many years. Turning Motorola into a profitable enterprise — not an easy task, as management there has found — would help make Google more financially independent from its ad business.
In fact, there’s good news for Google’s core business tucked away in the company’s income statement. In the second quarter of 2011, the cost of Google’s traditional lines of revenue amounted to 35.1 percent of income. This year, they were 36.3 percent. Look back to 2010 and the percentage was 36.2 percent, and 38.2 percent in 2009. In other words, Google has been gradually lowering its cost of ad revenue, which is one key to greater profitability.
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