Quote:
Originally posted by dtw
(400k advertisers times $500 ea = $200M.)
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Thanks for the correction on the math -- my brain was tired when I was writing (as it is tonight again, so correct me again if I make any more blunders).
Quote:
Originally posted by dtw
How are you determining that large customers don't make up more than 10% of their receivables book? In '05, AOL alone accounted for 9% of revenue.
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You are not understanding Google's advertising system -- AOL is an AdSense partner -- the advertising Google puts on AOL brought Google 9% of their revenue. AOL did
not buy enough advertising from Google to account for 9% of Google's revenue. (I'm not sure how much advertising AOL/TimeWarner actually buys from Google, but do not recall reading any analysis indicating that they are a major purchaser. I think Ebay is still the number one purchaser of Google ads -- that's why you almost always get some Ebay ad displaying when you do a Google search.)
The 9% of revenue for Google that comes though AOL's sites has no relationship with Google's receivables since the arrangement between Google and AOL would actually represent a payables on Google's balance sheet.
A brief explanation of Google's advertising system and its AdSense partnerships might make this clearer:
Google get 99% of its revenue from advertising; their advertisers participate in what is called Google's AdWords program -- advertisers bid on certain words/terms so that their ad is displayed when someone uses Google and searches for those words/terms. The ads are also displayed on sites that Google partners with; these partnership sites are part of Google's AdSense network. Google records revenue when someone clicks on an advertiser's ad and bills the advertiser consistent with the terms I described earlier.
Some of Google's partners are large -- like AOL, some are small -- like Pelican. Note the Google ads at the bottom of this page; Pelican gets some of the money the advertiser has to pay to Google when a user clicks on one of those ads. The exact same thing happens with AOL -- except I'm sure the payments AOL gets are a
lot larger than the ones Wayne gets since the AOL displayed ads are responsible for 9% of Google's revenue!
If anyone searches from AOL, they are effectively doing a Google search. The advertisers that display on AOL's search results pages are
not advertisers AOL is collecting revenue from directly, they are advertisers
with Google who are having their ads display on AOL's pages. Google collects the revenue from the advertisers when someone clicks on the ad, then pays a percentage to AOL, or whatever partner site the ad was displayed on.
The time between Google collecting the revenue from the advertiser and actually paying the percentage owed to the AdSense partner will result in an accounts payable on their balance sheet. At no time does the AdSense network result in a receivables on Google's balance sheet.
(Google's relationship with AOL -- and some of their other large partner sites -- actually involve Google guaranteeing certain payments to the partners, which Google will be obligated to pay even if they do not generate enough revenue from their advertisers to cover those payments. If the advertising market/economy goes into a slump, these arrangements could really hurt Google's earnings.)
Quote:
Originally posted by dtw
Further, gross accounts receivable is usually pretty straightforward to audit - auditors confirm balances with debtors and also vouch subsequent payment of invoices outstanding at the BS date - not a lot of sleep is lost over ensuring receivables exist.
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I'll have to plead ignorance on the specific methods the outside auditors use to confirm that receivable numbers are accurate. I do know that following HealthSouth's fraud, the multi-billion dollar write-downs involved hundreds of millions in receivables. What ever methods HealthSouth's auditors were using were not effective in finding the fraud hidden there. I'm not as familiar with the specifics in cases like Enron or WorldCom, but the auditors missed the fraud in these companies too -- the problem is that the auditors can only "spot check" something like receivables, and the company oversees how that "spot checking" is done. The auditors only end up seeing what the company wants them to see.