This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Google Inc. (GOOG) on 22 January, 2009.
Management:
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Chairman and CEO: Eric Schmidt
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SVP and CFO: Patrick Pichette
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SVP, Product Management: Jonathan Rosenberg
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SVP of Global Sales & Business Development: Omid Kordestani
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Director of IR: Krista Bessinger
Key Investors Issues
- Net income was $382 million or $1.21 a share, down 68% as compared to $1.21 billion or $3.86 a share in the prior year.
- Gross revenue was up 18% from $4.83 billion a year ago to $5.7 billion.
- It is planning to offer employees a voluntary, one-for-one stock option exchange.
Full Year Highlights:
- Revenues amounted to $21.8 billion, up 31% from $16.6 billion in 2007.
- Net income was relatively flat at $4.23 billion or $13.46 a share, from $4.2 billion or $13.53 a share in the prior year.
Fourth Quarter Highlights
Gross revenue was up 18% from $4.83 billion a year ago to $5.7 billion, reflecting a healthy growth across both google.com and the AdSense for content network.
- Google.com was up 22% year-over-year to $3.8 billion, driven by a steady traffic growth and a significant number of ads quality launches this quarter.
- AdSense was up 4% year-over-year to $1.7 billion, driven by decent performance in AdSense for content network.
- This was partially offset by the impact of the clean-up efforts on the AdSense for search network, as it continues to focus on delivering high quality traffic to advertisers.
- The global aggregate paid-click growth was also reasonably good, up 18% year-over-year and 10% quarter-over-quarter, reflecting healthy growth across all major geographies.
Good growth in the US with revenues up 13% year-over-year to $2.8 billion and up 5% quarter-over-quarter.
- International revenue also held up reasonably well accounting for 50% of total revenue or $2.9 billion.
- The UK did show some softness largely due to the currency, down 1% year-over-year to $685 million and down 12% quarter-over-quarter.
- The rest of EMEA Europe performed much better, driven by strong performance in Germany, France and the Netherlands. Asia and Latin America were solid as well, driven by the relatively good performance of Brazil and China.
- Net income was $382 million or $1.21 a share, down 68% as compared to $1.21 billion or $3.86 a share in the prior year due to higher costs of equity and impairments in equity investments in AOL and Clearwire.
Traffic acquisition costs were $1.5 billion, 27% of total advertising revenue and down from 28% sequentially.
- Costs of revenue increased by $29 million over the third to $707 million, with the largest driver of the increase datacenter related costs, including depreciation, equipment and operations.
- All other operating expenses totaled $1.65 billion, including $286 million in stock based compensation.
- Google recognized approximately $1.1 billion in strategic investment asset impairment charges related primarily to the investment in AOL and Clearwire.
- Operating cash flow remained strong at $2.1 billion and CapEx was $368 million, with the majority related to IT infrastructure investments, including datacenters, production of servers, and networking equipment.
Operational Insights:
- Google launched over 350 search quality improvements in 2008, with the biggest addition the size of the index, and that grew substantially over the year.
- It tripled the number of queries that trigger different types of results across images, videos, news, blogs, websites, and books.
- Blending books is particularly promising because it has now reached a settlement to lawsuits in the US with book search and if that''s approved by the court, millions more in copyright books will be accessible to the searcher.
– The firm also launched over 100 feature releases to theapplication suite in 2008, and the big advantage there of those web-based apps is how quickly and easily you can push new features out to customers.
Stock Options:
- About 85% of the firm’s employees have at least some stock options that are underwater, i.e. the exercise price is significantly higher than the current market price of a common stock.
- The firm is going to offer people an opportunity to do a Stock Exchange.
- The theory here is that part of the compensation in stock is how it happens in high-tech and it needs ultimately to have some value over the long-term.
- This, obviously, is a voluntary program and the number of shares subject to outstanding options will not change as a result of this exchange offer, although there may be more ultimately exercised, which may ultimately result in a change in that number.
- Total options are expected to represent 3% of total shares currently outstanding.
Opportunities:
- The core focus is on the huge untapped potential of search and ads i.e. search: more dynamic; less static; empower people to use.
- On ads, the firm is producing more relevancy as against more commercial queries every time.
- Relevancy against commercial queries equals ROI, which equals revenue for Google.
- It also has very significant advanced bidding measurement and optimization tools underway because larger advertisers are willing to take more clicks if they can get the tools to generate those clicks.
