Google: We spent $597 million on IT in a quarter

Summary:Google spent the majority of $597 million in first quarter capital expenditures on IT infrastructure, including data centers, servers and networking equipment. Google delivered pro forma earnings of $3.

Google spent the majority of $597 million in first quarter capital expenditures on IT infrastructure, including data centers, servers and networking equipment.

Google delivered pro forma earnings of $3.68 a share handily beating Wall Street estimates of $3.30 in the first quarter. Revenue minus traffic acquisition costs was $2.53 billion also topping estimates.

On the company's earnings conference call, Google CEO Eric Schmidt noted that management was "ecstatic" about the quarter, but cautioned that the company is "entering a seasonally slow period." As expected, Schmidt talked up Google's offline efforts with Echostar and Clear Channel. Schmidt did note that Google's print advertising test is "doing extremely well as learn what works and what does not." 

Among the key figures in the earnings statement (Techmeme discussion):

  • Operating income for the first quarter was $1.22 billion. Net income was $1 billion, or $3.18 a share, down slightly from the fourth quarter. Income excluding items was $1.16 billion, or $3.68 a share.
  • Gross revenue, which doesn't deduct traffic acquisition costs, was $3.66 billion. Google-owned sites had revenue of $2.28 billion on that basis. Partner sites through AdSense generated $1.35 billion in revenue.
  • International revenue accounted for 47 percent of Google's total revenue. International revenue was $1.71 billion.
  • Research and development spending in the quarter was $408 million.

Schmidt and Larry Page, president of products, seemed to go out of the way to emphasize that Google was focused on its core ad business since it funds new ventures. Page said 70 percent of Google's resources are focused on the core business. The remainder goes to new products. Schmidt added that there was a lot of growth in Google's primary business.

In the company's conference call slides, Google noted that its priorities are to expand its partner network, invest in infrastructure and employees and "improve the quality of the user experience." 

Here are some notable conference call tidbits:

  • Sergei Brin, president of technology, said advertising isn't a "zero sum game" and maintained that Google could make ads better for everyone.
  • Goldman Sachs analyst Anthony Noto asked what measurements is Google looking at for return? The answer: Google's primary focus is on "end user happiness," growth and satisfaction. In other words, Google doesn't sweat ROI. The company also doesn't segment products into whether a product produces revenue or not.
  • Revenue per employee--Noto asked at what point is Google's employee base large enough. Google said it is not focused on that metric as much as focusing on growth.
  • The Clear Channel deal includes a lot of premium inventory, said Schmidt. Echostar also has premium inventory. Schmidt said it's a misperception that those deals are limited to remnant ad inventory. Donna Bogatin has noted that the Clear Channel deal is very limited.
  • YouTube's filtering mechanism is compliant with the DMCA and there's an automated system to handle takedowns more efficiently. Google said the system will improve over the next year. Page noted that YouTube's growth was accelerating.

Google also said it will launch its employee transferable stock options program, which frankly is rocket science, in the second quarter.  Google also said Schmidt has been elected chairman of the board of directors. John L. Hennessy, president of Stanford University, has been elected lead independent director.

Topics: Google


Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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