Time will tell whether Google’s current Q3 earnings announcement will be its last impressive quarter displaying high growth rates in revenue and earnings.

Part of Google’s robust revenue growth has come as a result to the resiliency of consumer spending.  Unlike display advertising which is more of a long term investment proposition, search advertising has always been about a quicker payoff:

- advertise alongside organic results
- pay for actual visitors to your website
- if the ROI merits it, up your spending.

The problem with this scenario is that if consumer spending slows down - and it is and will continue to do so - a marketers’ ROI gets pummeled and naturally, the desire to spend money on pay per click advertisers tumbles accordingly.

In fact, what has also propped up cost per click (CPC) rates for Google is not simply the desire to lure consumers, but to outspend and outrank your competitors.

There are a few other hidden areas that explains Q3’s strong showing, the company’s:

- top line is definitely affected favorably by the 2008 US elections in which both Republicans and Democrats have turned to search advertising to promote one and bash another.

- bottom line was helped by lower capital expenditures.  It’s no secret that companies are tightening their belts, Google is no different.

I think the company will continue to watch expenses (if not cut costs) knowing full well that in the absence of an election, Q4 2008 might be more Scrooge and less Santa.

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