This is a summary of the third quarter fiscal 2008 earnings call conducted by Google, Inc. (GOOG) on October 16, 2008.
Management:
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CEO: Eric Schmidt
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CFO: Patrick Pichette
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Founder & President, Technology: Sergey Brin
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SVP, Product Management: Jonathan Rosenberg
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SVP, Global Sales & Operations: Omid Kordestani
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Chief Economist: Hal Varian
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IR: Krista Bessinger
Key Investor Issues:
- Google reported a 26% jump in net income to $1.35 billion, or $4.24 a share on $5.54 billion in revenue, up 31% from last year.
- International revenue accounted for 51% of total revenue or $2.8 billion.
- Traffic acquisition costs were $1.5 billion in the third quarter or 27.9% of total advertising revenue.
- On a worldwide basis, Google employed 20,123 full-time employees as of Sept. 30, up from 19,604 full-time employees as of June 30.
Third Quarter Highlights:
Traffic and revenue were both solid and the company kept tight control on costs. Year-on-year, for example, search query traffic is growing in almost every vertical.
Gross revenue was up 31% year-over-year to $5.5 billion reflecting healthy growth across both Google.com and the company’s network.
Google.com was up 34% year-over-year to $3.7 billion driven by steady traffic growth and AdSense was up 15% year-over-year to $1.7 billion, also reflecting solid growth across both content and search.
Global aggregate paid click growth was also reasonably good goes up 18% year-over-year and 4% quarter-over-quarter, reflecting healthy growth across all major properties. The company saw steady growth in the US with revenues up 22% year-over-year, to $2.7 billion and up 5% quarter-over-quarter.
International revenue also held up reasonably well, accounting for 51% of total revenue or $2.8 billion.
The UK showed some softness, but was up 17% year-over-year to $776 million, and essentially flat quarter-over-quarter including the impact of the currency. The rest of EMEA performed better driven by relatively good performance in the Netherlands and Germany.
Asia and Latin America were solid as well, mostly driven by relatively good performance in Brazil and China.
From an advertisers’ spend perspective, the company saw a combination of strong relative performance in many verticals including home appliances, apparels, jobs, but also some tougher performances in others such as home financing, auto financing, and real estate as everybody can imagine.
Traffic acquisition costs were $1.5 billion in the third quarter or 27.9% of total advertising revenue.
This is down from $28.4 million in the second quarter. AdSense TAC was $1.3 billion and Google TAC was $167 million. As the company embarks on new initiatives, Google may see additional pressures on TAC rates going forward.
Other costs of revenue they have increased $4 million over the second quarter to $678 million and the largest driver of the increase was data center related costs and those include depreciation, equipment and operations. All other operating expenses totaled $1.63 billion, including approximately $269 million in stocks-based compensation and expenses related to payroll and facilities increased $49 million over the second quarter to $859 million.
On the headcount front, the company finished a quarter with approximately 20,000 full-time employees.
That is approximately 500 net new employees added in the quarter and over half of these new net hires are in engineering, and then followed by sales and marketing. The company has implemented and continues to follow a disciplined hiring process in all areas of the organization, but as indicated in the past, the company continues to invest in its core business, both in the US and internationally.
In consequence of all this management expense the non-GAAP operating profit, which excludes stock-based compensation, crossed the $2 billion threshold for the first time in the third quarter, driving non-GAAP operating profit margins to 36.5%.
Interest income and other was $21 million for the quarter.
