If you’re always wondering ..what the hell is the profit of your preferred search engine in this world crisis situation …Google Inc. announced financial results for the quarter ended March 31, 2009.
“Google had a good quarter given the depth of the recession — while revenues were down quarter over quarter, they grew 6% year over year thanks to continued strong query growth. These results underline both the resilience of our business model and the ongoing potential of the web as users and advertisers shift online,” said Eric Schmidt, CEO of Google. “Going forward, our priority remains investing for the long term to drive future growth in our core and emerging businesses.”
Q1 Financial Summary
Google reported revenues of $5.51 billion for the quarter ended March 31, 2009, an increase of 6% compared to the first quarter of 2008 and a decrease of 3% compared to the fourth quarter of 2008. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the first quarter of 2009, TAC totaled $1.44 billion, or 27% of advertising revenues.
Google reports operating income, net income, and earnings per share (EPS) 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 in the accompanying financial tables.
- GAAP operating income for the first quarter of 2009 was $1.88 billion, or 34% of revenues. This compares to GAAP operating income of $1.86 billion, or 33% of revenues, in the fourth quarter of 2008. Non-GAAP operating income in the first quarter of 2009 was $2.16 billion, or 39% of revenues. This compares to non-GAAP operating income of $2.15 billion, or 38% of revenues, in the fourth quarter of 2008.
- GAAP net income for the first quarter of 2009 was $1.42 billion as compared to $382 million in the fourth quarter of 2008. Non-GAAP net income in the first quarter of 2009 was $1.64 billion, compared to $1.62 billion in the fourth quarter of 2008.
- GAAP EPS for the first quarter of 2009 was $4.49 on 317 million diluted shares outstanding, compared to $1.21 for the fourth quarter of 2008 on 317 million diluted shares outstanding. Non-GAAP EPS in the first quarter of 2009 was $5.16, compared to $5.10 in the fourth quarter of 2008.
- Non-GAAP operating income and non-GAAP operating margin exclude the expenses related to stock-based compensation (SBC). Non-GAAP net income and non-GAAP EPS exclude the expenses related to SBC, the non-cash impairment charges primarily related to our investments in AOL and Clearwire, and related tax benefits. In the first quarter of 2009, the charge related to SBC was $277 million as compared to $286 million in the fourth quarter of 2008. Also, in the fourth quarter of 2008, we recognized $1.09 billion in asset impairment charges related primarily to our investments in AOL and Clearwire. The tax benefit related to SBC was $64 million in the first quarter of 2009 and $65 million in the fourth quarter of 2008. The tax benefit related to the impairment charges was $82 million in the fourth quarter of 2008. Reconciliations of non-GAAP measures to GAAP operating income, operating margin, net income, and EPS are included at the end of this release.
Q1 Financial Highlights
Revenues – Google reported revenues of $5.51 billion in the first quarter of 2009, representing a 6% increase over first quarter 2008 revenues of $5.19 billion and a 3% decrease from fourth quarter 2008 revenues of $5.70 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting TAC.
Google Sites Revenues – Google-owned sites generated revenues of $3.70 billion, or 67% of total revenues, in the first quarter of 2009. This represents a 9% increase over first quarter 2008 revenues of $3.40 billion and a 3% decrease from fourth quarter 2008 revenues of $3.81 billion.
Google Network Revenues – Google’s partner sites generated revenues, through AdSense programs, of $1.64 billion, or 30% of total revenues, in the first quarter of 2009. This represents a 3% decrease from first quarter 2008 network revenues of $1.69 billion and a 3% decrease from fourth quarter 2008 network revenues of $1.69 billion.
International Revenues – Revenues from outside of the United States totaled $2.88 billion, representing 52% of total revenues in the first quarter of 2009, compared to 51% in the first quarter of 2008 and 50% in the fourth quarter of 2008. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the fourth quarter of 2008 through the first quarter of 2009, our revenues in the first quarter of 2009 would have been $120 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the first quarter of 2008 through the first quarter of 2009, our revenues in the first quarter of 2009 would have been $429 million higher.
Revenues from the United Kingdom totaled $733 million, representing 13% of revenue in the first quarter of 2009, compared to 15% in the first quarter of 2008 and 12% in the fourth quarter of 2008.
In the first quarter of 2009, we recognized a benefit of $154 million to revenue through our foreign exchange risk management program.
Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 17% over the first quarter of 2008 and increased approximately 3% over the fourth quarter of 2008.
TAC – Traffic Acquisition Costs, the portion of revenues shared with Google’s partners, decreased to $1.44 billion in the first quarter of 2009. This compares to TAC of $1.48 billion in the fourth quarter of 2008. TAC as a percentage of advertising revenues was 27% in the first quarter of 2009, compared to 27% in the fourth quarter of 2008.
The majority of TAC is related to amounts ultimately paid to our AdSense partners, which totaled $1.23 billion in the first quarter of 2009. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $207 million in the first quarter of 2009.
Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs as well as credit card processing charges, decreased to $666 million, or 12% of revenues, in the first quarter of 2009, compared to $707 million, or 12% of revenues, in the fourth quarter of 2008.
Operating Expenses – Operating expenses, other than cost of revenues, were $1.52 billion in the first quarter of 2009, or 28% of revenues, compared to $1.65 billion in the fourth quarter of 2008, or 29% of revenues. The operating expenses in the first quarter of 2009 included $774 million in payroll-related and facilities expenses, compared to $890 million in the fourth quarter of 2008.
Stock-Based Compensation (SBC) – In the first quarter of 2009, the total charge related to SBC was $277 million as compared to $286 million in the fourth quarter of 2008.
In March 2009, Google completed an offer to exchange certain employee stock options issued under Google’s 2004 Stock Plan (Exchange Offer). Certain previously granted options were exchanged for new, lower-priced stock options granted on a one-for-one basis. Options for an aggregate of approximately 7.6 million shares of Google’s Class A common stock were exchanged. Options granted pursuant to the Exchange Offer have an exercise price of $308.57 per share, the closing price of Google’s Class A common stock as reported by The Nasdaq Global Select Market on March 6, 2009. Options granted pursuant to the Exchange Offer have a new vesting schedule determined by adding 12 months to each vesting date under the exchanged options’ vesting schedule. In addition, new options will vest no sooner than September 9, 2009. The Exchange Offer will result in a modification charge related to SBC of $360 million to be recognized over the vesting periods of the new options. These vesting periods range from six months to approximately five years. We recorded $11 million of this $360 million modification charge in the first quarter of 2009.
We currently estimate SBC charges for grants to employees prior to April 1, 2009 to be approximately $1.1 billion for 2009. This estimate does not include expenses to be recognized related to employee stock awards that are granted after March 31, 2009 or non-employee stock awards that have been or may be granted.
Operating Income – GAAP operating income in the first quarter of 2009 was $1.88 billion, or 34% of revenues. This compares to GAAP operating income of $1.86 billion, or 33% of revenues, in the fourth quarter of 2008. Non-GAAP operating income in the first quarter of 2009 was $2.16 billion, or 39% of revenues. This compares to non-GAAP operating income of $2.15 billion, or 38% of revenues, in the fourth quarter of 2008.
Interest Income and Other, Net – Interest income and other, net decreased to $6 million in the first quarter of 2009, compared with interest income and other, net of $70 million in the fourth quarter of 2008.
Income Taxes – Our effective tax rate was 25% for the first quarter of 2009.
Net Income – GAAP net income for the first quarter of 2009 was $1.42 billion as compared to $382 million in the fourth quarter of 2008. Non-GAAP net income was $1.64 billion in the first quarter of 2009, compared to $1.62 billion in the fourth quarter of 2008. GAAP EPS for the first quarter of 2009 was $4.49 on 317 million diluted shares outstanding, compared to $1.21 for the fourth quarter of 2008, on 317 million diluted shares outstanding. Non-GAAP EPS for the first quarter of 2009 was $5.16, compared to $5.10 in the fourth quarter of 2008.
Cash Flow and Capital Expenditures – Net cash provided by operating activities for the first quarter of 2009 totaled $2.25 billion as compared to $2.12 billion for the fourth quarter of 2008. In the first quarter of 2009, capital expenditures were $263 million, the majority of which was related to IT infrastructure investments, including data centers, servers, and networking equipment. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the first quarter of 2009, free cash flow was $1.99 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 March 31, 2009, cash, cash equivalents, and short-term marketable securities were $17.8 billion.
Employees – On a worldwide basis, Google employed 20,164 full-time employees as of March 31, 2009, down from 20,222 full-time employees as of December 31, 2008.
Recent Developments – After ten years of building and managing our global sales and partnership operations, Omid Kordestani has decided to hand over the reins to Nikesh Arora, currently President of International Operations, and take on a new role as Senior Advisor, Office of the CEO and Founders. Continued growth is essential to our future success and no one is better placed to advise on new revenue opportunities than Omid, the business founder of Google. In his new role as President, Global Sales Operations and Business Development, Nikesh Arora will have responsibility for all Google’s revenue and customer operations, as well as marketing and partnerships. He has a proven track record at Google, having spent the last four and a half years building our European operations into a substantial business.
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| Google Inc. | ||||||
| CONSOLIDATED BALANCE SHEETS | ||||||
| (In thousands) | ||||||
| December 31, | March 31, | |||||
| 2008* | 2009 | |||||
| (unaudited) | ||||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 8,656,672 | $ | 10,426,291 | ||
| Marketable securities | 7,189,099 | 7,358,642 | ||||
| Accounts receivable, net of allowance | 2,642,192 | 2,543,105 | ||||
| Deferred income taxes, net | 286,105 | 434,903 | ||||
| Prepaid revenue share, expenses and other assets | 1,404,114 | 1,317,861 | ||||
| Total current assets | 20,178,182 | 22,080,802 | ||||
| Prepaid revenue share, expenses and other assets, non-current | 433,846 | 416,168 | ||||
| Deferred income taxes, net, non-current | – | 52,296 | ||||
| Non-marketable equity securities | 85,160 | 100,999 | ||||
| Property and equipment, net | 5,233,843 | 5,122,105 | ||||
| Intangible assets, net | 996,690 | 910,344 | ||||
| Goodwill | 4,839,854 | 4,830,315 | ||||
| Total assets | $ | 31,767,575 | $ | 33,513,029 | ||
| Liabilities and Stockholders’ Equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 178,004 | $ | 196,220 | ||
| Accrued compensation and benefits | 811,643 | 464,899 | ||||
| Accrued expenses and other current liabilities | 480,263 | 465,164 | ||||
| Accrued revenue share | 532,547 | 522,835 | ||||
| Deferred revenue | 218,084 | 216,937 | ||||
| Income taxes payable, net | 81,549 | 317,799 | ||||
| Total current liabilities | 2,302,090 | 2,183,854 | ||||
| Deferred revenue, non-current | 29,818 | 30,146 | ||||
| Income taxes payable, net, non-current | 890,115 | 1,160,158 | ||||
| Deferred income taxes, net, non-current | 12,515 | – | ||||
| Other long-term liabilities | 294,175 | 290,776 | ||||
| Stockholders’ equity: | ||||||
| Common stock | 315 | 316 | ||||
| Additional paid-in capital | 14,450,338 | 14,694,501 | ||||
| Accumulated other comprehensive income | 226,579 | 168,820 | ||||
| Retained earnings | 13,561,630 | 14,984,458 | ||||
| Total stockholders’ equity | 28,238,862 | 29,848,095 | ||||
| Total liabilities and stockholders’ equity | $ | 31,767,575 | $ | 33,513,029 | ||
| * Derived from audited financial statements. | ||||||
| Google Inc. | ||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||
| (In thousands, except per share amounts) | ||||||
| Three Months Ended | ||||||
| March 31, | ||||||
|
2008 |
2009 |
|||||
| (unaudited) | ||||||
| Revenues | $ | 5,186,043 | $ | 5,508,990 | ||
| Costs and expenses: | ||||||
| Cost of revenues (including stock-based compensation expense of $9,148, $12,537) | 2,110,536 | 2,101,504 | ||||
| Research and development (including stock-based compensation expense of $193,800, $168,561) | 673,069 | 641,643 | ||||
| Sales and marketing (including stock-based compensation expense of $42,576, $59,026) | 446,898 | 433,941 | ||||
| General and administrative (including stock-based compensation expense of $35,255, $37,359) | 409,305 | 448,311 | ||||
| Total costs and expenses | 3,639,808 | 3,625,399 | ||||
| Income from operations | 1,546,235 | 1,883,591 | ||||
| Interest income and other, net | 167,343 | 6,210 | ||||
| Income before income taxes | 1,713,578 | 1,889,801 | ||||
| Provision for income taxes | 406,492 | 466,973 | ||||
| Net income | $ | 1,307,086 | $ | 1,422,828 | ||
| Net income per share – basic | $ | 4.17 | $ | 4.51 | ||
| Net income per share – diluted | $ | 4.12 | $ | 4.49 | ||
| Shares used in per share calculation – basic | 313,129 | 315,252 | ||||
| Shares used in per share calculation – diluted | 317,392 | 317,221 | ||||
| Google Inc. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (In thousands) | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
|
2008 |
2009 |
|||||||
| (unaudited) | ||||||||
| Operating activities | ||||||||
| Net income | $ | 1,307,086 | $ | 1,422,828 | ||||
| Adjustments: | ||||||||
| Depreciation and amortization of property and equipment | 280,564 | 321,129 | ||||||
| Amortization of intangibles and other | 55,960 | 82,093 | ||||||
| Stock-based compensation | 280,779 | 277,483 | ||||||
| Excess tax benefits from stock-based award activity | (51,101 | ) | (31,844 | ) | ||||
| Deferred income taxes | (38,214 | ) | (12,847 | ) | ||||
| Other, net | (44,903 | ) | (21,409 | ) | ||||
| Changes in assets and liabilities, net of effects of acquisitions: | ||||||||
| Accounts receivable | (223,493 | ) | 97,390 | |||||
| Income taxes, net | 438,175 | 324,753 | ||||||
| Prepaid revenue share, expenses and other assets | (41,584 | ) | 77,457 | |||||
| Accounts payable | 53,784 | 21,879 | ||||||
| Accrued expenses and other liabilities | (234,277 | ) | (322,339 | ) | ||||
| Accrued revenue share | (10,124 | ) | 4,264 | |||||
| Deferred revenue | 6,794 | 8,675 | ||||||
| Net cash provided by operating activities | 1,779,446 | 2,249,512 | ||||||
| Investing activities | ||||||||
| Purchases of property and equipment | (841,597 | ) | (262,755 | ) | ||||
| Purchases of marketable securities | (2,819,512 | ) | (5,244,845 | ) | ||||
| Maturities and sales of marketable securities | 5,379,228 | 5,109,590 | ||||||
| Investments in non-marketable equity securities | – | (18,750 | ) | |||||
| Acquisitions, net of cash acquired, and purchases of intangible and other assets | (3,125,113 | ) | (2,072 | ) | ||||
| Net cash used in investing activities | (1,406,994 | ) | (418,832 | ) | ||||
| Financing activities | ||||||||
| Net payments related to stock-based award activity | (22,445 | ) | (36,736 | ) | ||||
| Excess tax benefits from stock-based award activity | 51,101 | 31,844 | ||||||
| Net cash provided by (used in) financing activities | 28,656 | (4,892 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | 37,048 | (56,169 | ) | |||||
| Net increase in cash and cash equivalents | 438,156 | 1,769,619 | ||||||
| Cash and cash equivalents at beginning of period | 6,081,593 | 8,656,672 | ||||||
| Cash and cash equivalents at end of period | $ | 6,519,749 | $ | 10,426,291 | ||||
| Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures | ||||||||||||||||||||||||||||||||
| The following table presents certain non-GAAP results before certain material items (in thousands, except per share amounts, unaudited): | ||||||||||||||||||||||||||||||||
|
Three Months Ended December 31, 2008 |
Three Months Ended March 31, 2009 |
|||||||||||||||||||||||||||||||
|
GAAP Actual |
Operating |
Adjustments |
Non-GAAP |
Non-GAAP |
GAAP Actual |
Operating |
Adjustments |
Non-GAAP |
Non-GAAP |
|||||||||||||||||||||||
| 286,172 | (c) | 277,483 | (d) | |||||||||||||||||||||||||||||
| Income from operations | $ | 1,860,204 | 32.6 | % | $ | 286,172 | $ | 2,146,376 | 37.6 | % | $ | 1,883,591 | 34.2 | % | $ | 277,483 | $ | 2,161,074 | 39.2 | % | ||||||||||||
| 286,172 | (c) | 277,483 | (d) | |||||||||||||||||||||||||||||
| (65,161 | ) | (e) | (64,016 | ) | (e) | |||||||||||||||||||||||||||
| 1,094,757 | (f) | |||||||||||||||||||||||||||||||
| (82,275 | ) | (g) | ||||||||||||||||||||||||||||||
| Net income | $ | 382,442 | $ | 1,233,493 | $ | 1,615,935 | $ | 1,422,828 | $ | 213,467 | $ | 1,636,295 | ||||||||||||||||||||
| Net income per share – diluted | $ | 1.21 | $ | 5.10 | $ | 4.49 | $ | 5.16 | ||||||||||||||||||||||||
| Shares used in per share calculation – diluted | 316,864 | 316,864 | 317,221 | 317,221 | ||||||||||||||||||||||||||||
| (a) Operating margin is defined as income from operations divided by revenues. | ||||||||||||||||||||||||||||||||
| (b) Non-GAAP operating margin is defined as non-GAAP income from operations divided by revenues. | ||||||||||||||||||||||||||||||||
| (c) To eliminate $286.2 million of stock-based compensation recorded in the fourth quarter of 2008. | ||||||||||||||||||||||||||||||||
| (d) To eliminate $277.5 million of stock-based compensation recorded in the first quarter of 2009. | ||||||||||||||||||||||||||||||||
| (e) To eliminate income tax effects related to items noted in (c) and (d). | ||||||||||||||||||||||||||||||||
| (f) To eliminate $1,094.8 million of impairment charges related to certain equity investments. | ||||||||||||||||||||||||||||||||
| (g) To eliminate income tax effects related to the charges noted in (f). | ||||||||||||||||||||||||||||||||
| Reconciliation from net cash provided by operating activities to free cash flow (in thousands, unaudited): | ||||
|
Three Months Ended |
||||
| Net cash provided by operating activities | $ | 2,249,512 | ||
| Less purchases of property and equipment | (262,755 | ) | ||
| Free cash flow | $ | 1,986,757 | ||
| Net cash used in investing activities* | $ | (418,832 | ) | |
| Net cash used in financing activities | $ | (4,892 | ) | |
| *includes purchases of property and equipment. | ||||
|
The following table presents our revenues by revenue source (in thousands, unaudited): |
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| Three Months Ended | ||||||||
| March 31, | ||||||||
|
2008 |
2009 |
|||||||
| Advertising revenues: | ||||||||
| Google web sites | $ | 3,400,405 | $ | 3,692,823 | ||||
| Google Network web sites | 1,686,141 | 1,638,042 | ||||||
| Total advertising revenues | 5,086,546 | 5,330,865 | ||||||
| Licensing and other revenues | 99,497 | 178,125 | ||||||
| Revenues | $ | 5,186,043 | $ | 5,508,990 | ||||
|
The following table presents our revenues by revenue source, as a percentage of total revenues (unaudited): |
||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
|
2008 |
2009 |
|||||||
| Advertising revenues: | ||||||||
| Google web sites | 66 | % | 67 | % | ||||
| Google Network web sites | 32 | % | 30 | % | ||||
| Total advertising revenues | 98 | % | 97 | % | ||||
| Licensing and other revenues | 2 | % | 3 | % | ||||
| Revenues | 100 | % | 100 | % | ||||
Source: Press Relase