Google earnings solid, company signals investment ahead

Google earnings solid, company signals investment ahead

Summary: Google beats Wall Street estimates for the first quarter but shares slip in after-hours trading.

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Google reported solid first quarter earnings today, beating Wall Street's estimates. For the quarter, the company reported non-GAAP net income of $2.18 billion, or $6.76 per share. Sales for the quarter were $5.06 billion. Wall Street analysts had been expecting earnings of $6.56 per share on revenue of $4.93 billion. (Statement, Preview)

On a GAAP basis, the company reported net income of $1.96 per share on sales of $6.77 billion, a 23 percent jump from the year-ago quarter.

In a statement, Google CFO Patrick Pichette said:

Google performed very well in the first quarter, with 23% year over year revenue growth driven by strength across all major verticals and geographies. Going forward, we remain committed to heavy investment in innovation -- both to spur future growth in our core and emerging businesses as well as to help build the future of the open web.

The company had a busy first quarter, including a showdown with the Chinese government and a new mobile phone strategy that includes direct-to-consumer sales of the Nexus One smartphone. The company didn't address either of those news events in its earnings release but surely it will be a topic of conversation when the company hosts a conference call with analysts this afternoon.

Specifically, investors will want to know about long-term plans in China, where the China site is currently being re-routed to the Hong Kong site. They'll like also want an update on the Nexus One, which reportedly has fallen short of expectations, and whether the company can sustain its strategy to sell mobile devices independent of carriers.

In the conference call, Pichette said that Nexus One, as as standalone, is profitable. The company won't, however, release specific sales numbers. He did say that the company is "very happy with the uptick" and said the device is raising the bar on mobile devices.

Starting with this quarter, CEO Eric Schmidt will no longer lead the conference call for investors, leaving that duty for Pichette. Some highlights from Pichette's prepared opening remarks:

  • The company is actively and aggressively hiring, largely for sales and engineering positions. The total workforce grew from 19,835 to 20,621 employees in the quarter.
  • In terms of products, the company said it's "pushing the envelope" with innovative products such as Google Goggles, which is focused around visual search on smartphones.
  • The company has been active with acquisitions and has a "strong M&A pipeline in place," bringing new technology and talent to the company.
  • Android adoption is strong, with 34 devices by 12 different OEMS and now more than 38,000 apps, a 78 percent jump from the fourth quarter.
  • Mobile has been strong, as well, driving search and apps usage.
  • Chrome is also growing well and the company said "technical innovation and performance," as well as security relative to other browsers, has made it attractive to users.

By the numbers:

  • Google-owned sites generated revenues of $4.44 billion, or 66% of total revenues, in the quarter. That's a 20 percent jump over the year-ago quarter.
  • Google’s partner sites generated revenues, through AdSense programs, of $2.04 billion, or 30% of total revenues. This represents a 24% jump from a year ago.
  • International revenues were $3.58 billion, or 53% of total revenues.
  • Traffic Acquisition Costs, the portion of revenues shared with Google’s partners, increased to $1.71 billion, up from $1.44 billion a year ago. TAC, as a percentage of ad revenues, was 26%, down from 27% a year ago.
  • At the end of the quarter, the company had $26.5 billion in cash and cash equivalents.

Shares of Google were up slightly in regular trading, closing at $595.30. Shares were down about 4 percent in after-hours trading.

Topics: Google, Banking, Enterprise Software

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16 comments
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  • "Other"

    It's interesting to see how Google's revenue breaks down in the chart. The story is pretty simple: Google makes essentially all of their money from Google.com search and AdSense ads on 3rd party Web sites. "Other" includes everything else they do...Google Apps, Google Search Appliance, Postini etc. That stuff is rounding error. I wonder how long Google actually decides to keep those businesses going if they're doing so little for the bottom line and are not linked to their core business - which is to monetize your information. ;-)

    As a small business person I can imagine using Google Apps as a nice way to share files and complement what Microsoft Office does. But there's no way I'd move a business of any size to Google Apps without a very easy exit strategy if Google decides to bail out.
    marksashton
    • Very valid point

      >>As a small business person I can imagine using Google Apps as a nice way to share files and complement what Microsoft Office does. But there's no way I'd move a business of any size to Google Apps without a very easy exit strategy if Google decides to bail out.

      that is one of the problems with Cloud, vendor lockin.
      --Ram--
      Ram U
      • RE: Google earnings solid, company signals investment ahead

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        giacomo Al
    • Google does not have to make any money on Apps as long as it accelerates

      the move to the cloud and reduces the reliance
      on the desktop. Also, I don't think that they
      break out the advertising money they make from
      Apps, that is lumped with the rest.

      But, Google is in to Google Apps for the long
      haul, as it disrupts competitors, and, even if
      not significant compared to what they make on
      search, they are making good money there.
      DonnieBoy
    • Also, the other revenue is 300 million dollars, up 300% since 2008.

      So, looking good even if dwarfed by search.
      DonnieBoy
    • Agreed. A very good point.

      A good example would be Google Gears: It was touted as the colaboration method of the future.

      It was not going anywhere all that fast, so Google discontinues it, leaves developers stranded. Some time and money went into it from companies looking to build on it.

      You are correct, though, as should Google decide that the effort is not worth it, what happens to businesses using it if they decide t pull the plug on it, also?
      GuidingLight
      • Gears was to show what was possible. Now that Gears functionality is being

        incorporated into HTML5, they are migrating to
        HTML5.
        DonnieBoy
        • Doesn't change a thing GL said, they discontinued it

          and they could do that with anything, at which point you don't even have the software to use.

          This is just another problem going with Google Apps.
          John Zern
          • Offline access is transitioning to standards based HTML5. That shows that

            Google is committed to standards that all can
            use.
            DonnieBoy
          • Good point...nt

            nt
            ItsTheBottomLine
    • We are a medium size enterprise and that is

      exactly what we do with Google Docs/Apps. But it is a concern that we have had. They are rather skiddish on apps over their history. In addition to the other very large irritation it the view on enteprise level security and enterprise security integration with them. That's a whole other story, and a real thorn in our Security teams rump - think SOX...brrrrr that was chill going down my back.
      ItsTheBottomLine
  • Does the lack of Nexus One details hide big disappointment?

    We really want to see a complete numbers break down on the nexus one google.
    Johnny Vegas
    • Nexus One is profitable, and, they are using it to raise the bar for cell

      phone functionality. Google makes a lot more
      money on search advertising with lots of more
      functional smart phones.
      DonnieBoy
      • I heard it was unprofitable

        because lackluster sales was due to the fact that it really didn't do anything over and beyond other phones on the market, so it wasn't raising the the bar for anything.
        John Zern
        • Read the article: "In the conference call, Pichette said that Nexus One,

          as as standalone, is profitable."

          In any case, a souped up version of the Nexus
          One is being sold directly by Verizon starting
          at the end of this month. Old habits to not
          change fast, and people will still typically buy
          phones at a store where they can touch and feel
          them. The main goal of Nexus one was to show
          what is possible. It has gotten rave reviews.
          DonnieBoy
        • From Thurs...

          "While we view Google?s Nexus One as the most advanced Android phone available to date, we believe that based on checks from Piper Jaffray analyst Mike Walkley and data released by mobile analytics companies, the phone has not seen the same success in the market as the Droid and other alternatives. Previously we expected the phone would ultimately reach carrier stores for sale, which has not yet happened. Our prior estimate of 350k Nexus One?s sold in Q1 appears aggressive and we believe the number may be closer to 160k for Q1; this represents a $100 million reduction to top-line revenue, but a $0.06 improvement to earnings as we expect Nexus One to carry a lower operating margin than Google?s core search product, for which we increased estimates."
          ItsTheBottomLine