This summary is based on the second quarter fiscal 2008 earnings call conducted by Google Inc. (GOOG) on July 17, 2008.
Management:
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CEO: Eric Schmidt
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CFO: George Reyes
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Founder and President of Technology: Sergey Brin
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SVP of Product Management: Jonathan Rosenberg
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SVP of Global Sales and Operations: Omid Kordestani
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Chief Economist: Hal Varian
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Director of Investor Relations: Krista Bessinger
Key Investors Issues
- Gross revenue increased 39% to $5.37 billion, up from $3.87 billion in the prior year.
- Net income was $1.25 billion or $3.92 a share, up 35% from $925 million or $2.98 a share in 2007.
- Net cash provided by operating activities for totaled $1.77 billion as compared to $1.78 billion in the prior period.
Half Year Highlights:
- Revenues rose 39% to $10.6 billion from $7.6 billion in the prior year.
- Net income was $2.6 billion or $8.15 a share, up 37% from $1.9 billion or $6.22 a share in 2007.
Second Quarter Highlights
Gross revenue increased 39% to $5.37 billion, up from $3.87 billion in the prior year, as Google.com performed well, up 42% year over year to $3.5 billion, driven by strong traffic growth and to a lesser extent, monetization.
- AdSense revenue grew 22% but was down slightly on a sequential basis, reflecting a continued focus on delivering high quality traffic to advertisers and typical seasonality.
- Aggregate paid clicks include clicks related to ads served on Google properties, as well as ads served on partner sites.
- Aggregate paid clicks grew approximately 19% and were down slightly on a sequential basis, again reflecting a continued focus on delivering high quality traffic to advertisers and seasonality.
- International revenue accounted for 52% of revenue, or $2.8 billion, with the UK solid with revenues of $774 million, up 29% year over year.
Revenue growth in EMEA was strong, fueled by relatively strong performance in automotive and consumer packaged goods.
- Asia and Latin America continue to show impressive growth as well with Japan, Argentina, Australia, Brazil and China being notably strong.
- Traffic acquisition costs were $1.5 billion, or 28.4% of total advertising revenue, down from 29.2% in the prior period.
- AdSense TAC was $1.3 billion, while TAC related to distribution partners and others who direct traffic to websites totaled $154 million.
- As the firm grows the AdSense Partner Network and embark on new initiatives, it may see additional pressure on TAC rates going forward.
- Other cost of revenue, which includes $9 million in stock-based compensation, increased $49 million to $674 million, with the largest driver being increase in costs related to data centers, including depreciation, equipment and operations.
Other than cost of revenue, operating expenses totaled $1.64 billion, including $264 million in stock-based compensation and expenses related to payroll and facilities increased $1 million over the prior period to $810 million.
- The firm had a full-time employee base of 19,604 and added 448 net new employees in with roughly half the new non-DoubleClick hires coming on board in engineering, followed by sales and marketing.
- Operating profit which excludes stock-based compensation, increased to $1.9 billion, with non-GAAP operating margins of 34.5%.
- Interest income and other was $58 million, down $109 million from the prior year due to lower yields on the cash balance and lower average cash balances as a result of cash used in the first quarter to acquired DoubleClick.
- Interest income was also affected by lower net realized gains on the sale of marketable securities and an increase in expenses as a result of more activity under the foreign exchange hedging programs.
Operating cash flow remained strong at $1.77 billion, with the majority of CapEx related to IT infrastructure investments, including data center construction, production of servers and networking equipment.
- Free cash flow remained strong at $1.7 billion, up 63% year over year.
- Net income was $1.25 billion or $3.92 a share, up from $925 million or $2.98 a share in the prior year due to revenue growth.
Economic Environment Impact:
- Year-over-year automotive ad spend is up, even though the growth in auto financing is down, implying auto advertisers are willing to spend on clicks, but the weakness is on the consumer side.
- Spending seems to be holding up pretty well in other consumer durable categories such as home appliances and home furnishings.
- In the UK, there was across-the-board year-to-year growth in both revenue and queries, with the sole expectation being real estate.
- Continental Europe grew in both queries and revenue in every major vertical.
Product Update:
- The firm has substantially increased the size of the index, and in particular, the index of documents that it refreshes every few minutes has also grown tremendously.
- It has increased coverage in universal search, which means clients get web pages mixed in with video and images, news, books, all of those things the firm was able to show more and more.
- That improves search results and it pays a double dividend for all of the work the firm has been doing on corpuses such as book search.
- It also just added blog results at the bottom of the page in the past quarter, and the blending of Maps results have been put into 130 more countries than in the past.
The iGoogle artist campaign has resulted in 68 artists across 22 countries creating new themes for the product, encouraging hundreds of thousands of people to sign up for iGoogle.
- It has been working on Google Translate, which now covers over 20 languages, having added 10 languages in the quarter.
- The AdSense Network now allows third parties to host and serve ads, and this has been important to many advertisers.
- Advertisers find out more about where they should be advertising because the firm has launched the Google Ad Planner.
- Experiments with YouTube on a variety of advertising formats have been successful, with Lionsgate marking the opening of the film “The Forbidden Kingdom”, for example, and it had over 4 million video views on YouTube just from that promotion.
