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conference date: January 31, 2007 @ 1:30 PM Pacific
Time
for quarter ending: December 31, 2006 (4th quarter)
Overview: Revenues and profits above expectations and rapid growth continues.
Basic data:
Revenues of $3.21 billion, up 19% sequentially and 67% over Q4 2005. Acquisition costs (TAC) were $976 million or 31% of advertising revenue.
GAAP net income was $1.03 billion, up 40.5% sequentially from $733 million. GAAP earnings per share (EPS) were $3.29.
Cash and equivalents (including marketable securities) ended at $11.2 billion.
Guidance:
Does not give guidance.
Conference Highlights:
Business continues to be very, very good. Are gaining share globally, in almost every country. Fewer ads per search, but of much higher quality.
GAAP operating income was $1.06 billion or 33% of revenue, up 14% sequentially. Tax rate was 13% versus 23% for the full year due to the new R&D tax credit.
There was an income benefit of $90 million due to a deal with the IRS.
Google properties / site revenues were $1.98 billion or 62% of total revenues, up 22% sequentially and 80% from Q4 2005.
Network revenues (AdSense program) of $1.2 billion or 37% of total revenue. This is up 16% sequentially and 50% from Q4 2005.
Aggregate paid clicks increased 22% sequentially and 61% year-over-year.
TAC increased to $976 million, up 18% sequentially. $916 million was paid to AdSense partners.
Operating expense was $862 million. Stock-based compensation rose 34% to $134 million. May increase due to credit card fees.
Net cash from operating activities was $911 million, down from $1 billion in Q3. Capital expenditures were $367 million. Cash and equivalents (including marketable securities) ended at $11.2 billion.
10,674 employees, up from 9,378 at end of Q3.
Google Checkout adoption rates exceeded expectations. Repeat usage stayed strong after marketing campaign. 20% of top 500 retailers have now signed out.
U.S. revenue of $1.8 billion. International revenues were 44% of total revenues. Europe did particularly well.
Expects to continue to invest heavily and hire employees. Continues to need substantial increases in computational power.
Expected tax rate for 2007 to be at or below 30%.
Improved ad relevance for search and improved search results, including moving new content catagories into main search results. Offline ads offered at radio and newspapers, supported by analytics.
Q&A:
Paid click growth rates v. revenue? Partly due to mix, because newer geographic markets have lower prices than established markets, but are growing faster. Holidays also skew pricing. Apples to Apples, no sign of declining price per click.
Google checkout transactions are against revenue. Amounted to a decline of 1% in total revenue. Users are drawn to checkout badges, so people click on those ads more and click-through rate is better.
Mobile acquisitions, when will revenues start? 2007 will be the year mobile search traffic will grow substantially. Revenue per search likely to be higher than non-mobile. But no significant financial impact until 2008.
YouTube revenues? No revenue breakout. Focus is user-adoption and experimenting with advertising model. Justification of acquisition looks good. Looking for model to return some revenue to content producers.
Betas for radio and print? Working hard, but too early to tell.
New partner benefits? Pleased with contacts with major content producers. Improving quality of network and monetization. Saw signifant revenue growth with partners and expect it to continue.
Healthcare? Had some requests to look at that industry, but still investigating.
UK in Q4 has reverse effect of US, so flatness due to seasonality.
Deals with major content prior to acquisition? Accounted for in acquisition accounting.
Traditional media advantages? Synergy of multiple types of ads. Able to target locally. Give real time reports on when and where ads play.
Likely to keep both Google Video and YouTube brands.
TAC upward trend? Function of type of deals.
Display ad business? Over 25% of top display advertisers are running ads with Google.
Personalized search? Starting to get healthy usage. Quality improvements are significant. No specific data.
International click rates? Internet growing faster outside the US may explain faster growth of clicks internationally over US.
TV ad market? Experimenting with TV advertising. Looking to improve the business.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. Before making or terminating an investment you should always verify any factual basis of your decision .
Copyright 2007 William P. Meyers