Thursday, July 18, 2013

Google Stock Price Falls After Earnings Report

MOUNTAIN VIEW, California -- Google, Inc.'s stock price fell by over 5% following the release of its 2013 2nd Quarter Earnings Results.  Disappointing earnings and a 6% decline in average cost-per-click when compared to the second quarter of 2012 spurred the after-hours sell off.  But Google CEO Larry Page remains optimistic:

"Google had a great quarter with over $14 billion in revenue – up 19% year-on-year,” said Page in a release. “The shift from one screen to multiple screens and mobility creates tremendous opportunity for Google. With more devices, more information, and more activity online than ever, the potential to improve people’s lives even more is immense.”  


Google's Q2 Financial Summary and Highlights follow:

Q2 Financial Summary

Google Inc. reported consolidated revenues of $14.11 billion for the quarter ended June 30, 2013, an increase of 19% compared to the second quarter of 2012. Google Inc. reports advertising revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the second quarter of 2013, TAC totaled $3.01 billion, or 25% of advertising revenues. 

 
Operating income, operating margin, net income, and earnings per share (EPS) are reported on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures at the end of this release.
  • GAAP operating income in the second quarter of 2013 was $3.12 billion, or 22% of revenues. This compares to GAAP operating income of $3.24 billion, or 27% of revenues, in the second quarter of 2012. Non-GAAP operating income in the second quarter of 2013 was $3.99 billion, or 28% of revenues. This compares to non-GAAP operating income of $3.94 billion, or 33% of revenues, in the second quarter of 2012.
  • GAAP net income including net income from discontinued operations in the second quarter of 2013 was $3.23 billion, compared to $2.79 billion in the second quarter of 2012. Non-GAAP net income in the second quarter of 2013 was $3.23 billion, compared to $3.36 billion in the second quarter of 2012.
  • GAAP EPS including impact from net income from discontinued operations in the second quarter of 2013 was$9.54 on 338 million diluted shares outstanding, compared to $8.42 in the second quarter of 2012 on 331 million diluted shares outstanding. Non-GAAP EPS in the second quarter of 2013 was $9.56, compared to $10.16 in the second quarter of 2012.
  • Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense, as well as restructuring and related charges recorded in our Motorola Mobile business.  Non-GAAP net income and non-GAAP EPS exclude the expenses noted above, net of the related tax benefits, as well as net income or loss from discontinued operations. In the second quarter of 2013, the expense related to SBC and the related tax benefits were $778 million and $167 million compared to $561 million and $134 million in the second quarter of 2012. In the second quarter of 2013, restructuring and related charges recorded in our Motorola Mobile business and the related tax benefits were $89 million and $21 million, compared to $141 million and $39 million in the second quarter of 2012. In addition, net income from discontinued operations in the second quarter of 2013 was $674 million, compared to net loss from discontinued operations of $48 million in the second quarter of 2012.

Q2 Financial Highlights

Revenues and other information – On a consolidated basis, Google Inc. revenues for the quarter ended June 30, 2013 were $14.11 billion, an increase of 19% compared to the second quarter of 2012.


Google Revenues (advertising and other) – Google revenues were $13.11 billion, or 93% of consolidated revenues, in the second quarter of 2013, representing a 20% increase over second quarter 2012 revenues of $10.96 billion.
  • Google Sites Revenues – Google-owned sites generated revenues of $8.87 billion, or 68% of total Google revenues, in the second quarter of 2013. This represents an 18% increase over second quarter 2012 Google sites revenues of $7.54 billion.
  • Google Network Revenues - Google’s partner sites generated revenues of $3.19 billion, or 24% of total Google revenues, in the second quarter of 2013. This represents a 7% increase from second quarter 2012 Google network revenues of $2.98 billion.
  • Other Revenues – Other revenues from Google were $1.05 billion, or 8% of total Google revenues, in the second quarter of 2013.  This represents a 138% increase over second quarter 2012 other revenues of $439 million.
Google International Revenues – Google revenues from outside of the United States totaled $7.2 billion, representing 55% of total Google revenues in the second quarter of 2013, compared to 55% in the first quarter of 2013 and 54% in the second quarter of 2012. 


Foreign Exchange Impact on Google Revenues - Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the first quarter of 2013 through the second quarter of 2013, our Google revenues in the second quarter of 2013 would have been $177 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2012 through the second quarter of 2013, our Google revenues in the second quarter of 2013 would have been $217 million higher.
  • Google revenues from the United Kingdom totaled $1.32 billion, representing 10% of Google revenues in the second quarter of 2013, compared to 11% in the second quarter of 2012.
  • In the second quarter of 2013, we recognized a benefit of $35 million to Google revenues through our foreign exchange risk management program, compared to $81 million in the second quarter of 2012.
Reconciliations of our non-GAAP international revenues excluding the impact of foreign exchange and hedging to GAAP international revenues are included at the end of this release. 


Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 23% over the second quarter of 2012 and increased approximately 4% over the first quarter of 2013. 


Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 6% over the second quarter of 2012 and decreased approximately 2% over the first quarter of 2013. 


TAC – Traffic acquisition costs, the portion of revenues shared with Google’s partners, increased to $3.01 billion in the second quarter of 2013, compared to $2.60 billion in the second quarter of 2012. TAC as a percentage of advertising revenues was 25% in the second quarter of 2013, compared to 25% in the second quarter of 2012. 


The majority of TAC is related to amounts ultimately paid to our Network members, which totaled $2.31 billion in the second quarter of 2013. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $706 million in the second quarter of 2013. 


Motorola Mobile Revenues (hardware and other) - Motorola Mobile revenues were $998 million, or 7% of consolidated revenues in the second quarter of 2013, compared to $843 million, or 7% of consolidated revenues in the second quarter of 2012. 


Other Cost of Revenues – Other cost of revenues, which is comprised primarily of manufacturing and inventory-related costs, data center operational expenses, amortization of intangible assets, and content acquisition costs, increased to $3.05 billion, or 22% of revenues, in the second quarter of 2013, compared to $2.08 billion, or 18% of revenues, in the second quarter of 2012. 


Operating Expenses – Operating expenses, other than cost of revenues, were $4.92 billion in the second quarter of 2013, or 35% of revenues, compared to $3.89 billion in the second quarter of 2012, or 33% of revenues. 


Amortization Expenses – Amortization expenses of acquisition-related intangible assets were $283 million for the second quarter of 2013, compared to $184 million in the second quarter of 2012.  Of the $283 million, $153 million was as a result of the acquisition of Motorola, of which $116 million was allocated to Google and $37 million was allocated to Motorola Mobile. 


Stock-Based Compensation (SBC) – In the second quarter of 2013, the total charge related to SBC was $783 million, compared to $635 million in the second quarter of 2012. We currently estimate SBC charges for grants to employees prior to June 30, 2013 to be approximately $3.2 billion for 2013. This estimate does not include expenses to be recognized related to employee stock awards that are granted after June 30, 2013 or non-employee stock awards that have been or may be granted.
 

Operating Income – On a consolidated basis, GAAP operating income in the second quarter of 2013 was $3.12 billion, or 22% of revenues. This compares to GAAP operating income of $3.24 billion, or 27% of revenues, in the second quarter of 2012. Non-GAAP operating income in the second quarter of 2013 was $3.99 billion, or 28% of revenues. This compares to non-GAAP operating income of $3.94 billion, or 33% of revenues, in the second quarter of 2012.
  • Google Operating Income – GAAP operating income for Google was $3.47 billion, or 26% of Google revenues, in the second quarter of 2013. This compares to GAAP operating income of  $3.44 billion, or 31% of Google revenues, in the second quarter of 2012. Non-GAAP operating income in the second quarter of 2013 was $4.21 billion, or 32% of Google revenues. This compares to non-GAAP operating income of $3.99 billion in the second quarter of 2012, or 36% of Google revenues.
  • Motorola Mobile Operating Loss – GAAP operating loss for Motorola Mobile was $342 million, or -34% of Motorola Mobile revenues in the second quarter of 2013. This compares to GAAP operating loss of $199 million, or -24% of Motorola Mobile revenues in the second quarter of 2012. Non-GAAP operating loss for Motorola Mobile in the second quarter of 2013 was $218 million, or -22% of Motorola Mobile revenues. This compares to non-GAAP operating loss of $49 million, or -6% of Motorola Mobile revenues in the second quarter of 2012.
Interest and Other Income, Net – Interest and other income, net, was $247 million in the second quarter of 2013, compared to $253 million in the second quarter of 2012. 


Income Taxes – Our effective tax rate was 24% for the second quarter of 2013. 


Net Income (Loss) from Discontinued Operations – Net income from discontinued operations in the second quarter of 2013 was $674 million which included a gain on disposal of Motorola Home of $747 million, compared to a loss of $48 million in the second quarter of 2012. 


Net Income – GAAP net income in the second quarter of 2013 was $3.23 billion, compared to $2.79 billion in the second quarter of 2012. Non-GAAP net income was $3.23 billion in the second quarter of 2013, compared to $3.36 billion in the second quarter of 2012. GAAP EPS in the second quarter of 2013 was $9.54 on 338 million diluted shares outstanding, compared to $8.42 in the second quarter of 2012 on 331 million diluted shares outstanding. Non-GAAP EPS in the second quarter of 2013 was $9.56, compared to $10.16 in the second quarter of 2012. 


Cash Flow and Capital Expenditures - Net cash provided by operating activities in the second quarter of 2013 totaled $4.71 billion, compared to $4.25 billion in the second quarter of 2012. In the second quarter of 2013, capital expenditures were $1.6 billion, the majority of which was for production equipment, data center construction and facilities-related purchases. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the second quarter of 2013, free cash flow was $3.09 billion.
We expect to continue to make significant capital expenditures. 
 
A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release. 


Cash – As of June 30, 2013, cash, cash equivalents, and marketable securities were $54.4 billion. 


Headcount – On a worldwide basis, we employed 44,777 full-time employees (40,178 in Google and 4,599 in Motorola Mobile) as of June 30, 2013, compared to 53,891 full-time employees (38,739 in Google, 9,982 Motorola Mobile, and 5,170 Motorola Home) as of March 31, 2013.