Friday, April 22, 2011

Google Q1 2011 Earnings Conference Call (Review) "Unrelenting pace of the digital economy" GOOG

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Google reported Q1 2011 financial results on Thursday, April 14, 2011


Google Q1 2011 Earnings Conference Call

Google reported disappointing March Q1 2011 earnings on April 14, 2011. Financial charts, review, and commentary are posted on the Google Financial Performance page.

Quick Summary Google reported a very good quarter if viewed year over year. Compared to the prior year quarter Q1 2010, Google has improved performance very well. Compared to the prior quarter Q4 2010, Google financial performance was disappointing. There is some uncertainty as this was the first quarter that Google co-founder Larry Page is CEO, replacing Eric Schmidt who has become Executive Chairman. However, Google is still a leading edge company and is operating effectively in the worldwide digital economy which is growing rapidly as the web expands and more people come online. Both Google's core and emerging businesses are exploiting and monetizing this digital economic growth. Mobile, Android, new ad formats, and the display network are improving revenues. Search is still the Google core business and will continue to be, although both display and applications are considered equally significant for resource and development allocation and ultimately for revenues.

Google Management Present at the Q1 2011 earnings conference call were Larry Page, Co-Founder and CEO, Patrick Pichette, Senior Vice President and Chief Financial Officer, Susan Wojcicki, Senior Vice President of Advertising, Larry Huber, Senior Vice President of Commerce and Local, and Nikesh Arora, Senior Vice President and Chief Business Officer. Eric Schmidt, former CEO and now Executive Chairman and Jonathan Rosenberg, Senior Vice President of Product Management, were not present as in past quarters. Schmidt, as Executive Chairman, is no longer involved in daily operations. Rosenberg announced April 4 that he would be leaving Google "in the coming months".

CEO Larry Page: "We've had a tremendous quarter, 27% year-over-year revenue growth in Q1" Google Co-Founder and now CEO Larry Page preempted the earnings call. Referring to the management restructure announced at the previous Q4 2010 earnings conference call in January, Page began, "I'm managing the day-to-day operations of Google as the CEO, working very closely with my team, and I'm really excited about the progress we've had there. I think we really hit the ground running." He added that Eric Schmidt, former CEO and now Executive Chairman, "Eric, of course, is focused externally, on the government partnerships, government relations and partnership outreaches." Regarding the other Co-Founder, Sergey Brin, "Sergey is working very intensively on a few emerging projects for us." Regarding Jonathan Rosenberg, Vice President of Product Management, who has announced his departure from Google, "is transitioning out of the company as was announced awhile ago."

CFO Patrick Pichette: "Google is clearly benefiting from and is also fueling the unrelenting pace of the digital economy" Patrick Pichette, Senior Vice President and Chief Financial Officer, then reviewed the Q1 2011 financial results, which are also reviewed on the Google Financial Performance page, noting the increase in total revenues YoY +27% and QoQ +2% and the full quarterly impact of the 10% salary increase for all employees. Pichette added, "This 27% proves really the logic behind our strategy, not only to invest heavily in our core search business and ads but also in our new emerging businesses like display, mobile, enterprise." Further, "Google is clearly benefiting from and is also fueling the unrelenting pace of the digital economy that's around us. And it's growth that we believe will benefit both Google but in fact, the entire ecosystem for a long time to come." Pichette also noted, "Our accelerating growth trajectory, it really shows our confidence to expand across products and geographies. Roughly 18 months ago, we began communicating how we were really optimistic about our opportunities, and we had the business confidence to invest heavily in the next phase of innovation and revenue generation. Well, our product innovation over the last 18 months has been nothing short but extraordinary".

SVP Larry Huber: "We're activating over 350,000 Android devices every day" Larry HuberSenior Vice President of Commerce and Local, reviewed search, Android, Chrome, and enterprise. He began by noting that, "We announced in January, with a blog post to help energize recruiting, that 2011 will be the biggest hiring year in our history, topping the 6,000 people we hired in 2007. And we ended up hiring 1,900 people this quarter."

Huber discussed search, "Search is the most important thing people do online, and there's loads of opportunities to make search more intelligent and more personal. Intelligent, as in better quality. Our primary focus is to always create the best user experience." Huber added, "A lot more of our searches are coming from mobile devices. This traffic has gone up more than 500% in the last two years. Android is obviously a big driver of this. We're activating over 350,000 Android devices every day. Android Market is taking off too, over 3 billion apps have been installed, up 50% in just the last quarter."

Huber then discussed Chrome, "We have over 120 million daily users, over 40% of whom we added in the past year as a result of our marketing efforts. The Chrome OS program is also going well, and we look forward to launching devices with our partners later this year."

Huber concluded with enterprise, "Our Enterprise business is growing across both businesses and schools." He noted approval by the U.S. Department of Justice of the ITA Software acquisition and the utilization of this platform by Google for travel searches.

SVP Susan Wojcicki: "Search is still our core business" Susan Wojcicki, Senior Vice President of Advertising, reviewed ads products, search ads, mobile ads, local ads, display ads and YouTube. She began, "Search is still our core business and even though it's a really large business, we see a significant opportunity for growth, as Larry mentioned. One of the things that we've been focusing on is thinking about how we can serve the most perfect ad for every query. A query for a product will require a very different kind of ad than a query about a movie. And in order to do this, we are enabling new creative types and new ways for advertisers to set up their campaigns."

Wojcicki discussed "product listing ads", which creates ads from advertiser product feeds instead of key words and "media ads", which are "a much richer ad format for more brand-focused advertisers". Wojcicki then discussed display and the Google Display Network. She noted there are two types of display advertisers, "performance-oriented, where they value conversions and clicks or more brand-oriented, where they are focused on raising awareness." She added about the ad exchange, "advertisers and agencies can buy the exact audiences they want across the Internet" and this "results in better ads for users and gets us closer again to serving the more perfect ad." Wojcicki stated that YouTube is part of the display strategy and "revenue is doubling year-over-year, and we share that revenue with over 20,000 content partners." Wojcicki concluded with mobile, "AdMob, the display network that we acquired last year, has over 150 million iOS and Android devices making requests per month. That's up 50% in the past four months, which gives you an idea of how fast Mobile Display advertising is growing." Further, "Many of our advertisers are starting to run mobile-only campaigns as opposed to bundling it with their desktop campaigns."


Question and Answer Session

Notes and Comments from the Question and Answer Session:
Salaries and benefits were disproportionately high in Q1 due to 401K and accruals (Pichette)
Google Chrome browser: everybody that uses Chrome is a guaranteed locked-in user for us in terms of having access to Google (Pichette)
Google Chrome browser: 120 million daily users, and 40% of them were added in the past year (Arora)
Google Chrome browser strategy: many of our other products work as part of Chrome
Google is a technology company focused on users and looking for products that can affect billions of people. (Pichette)
Search is the next billion-dollar business. Never forget it. (Pichette)
These are the next billion-dollar businesses, which include mobile, display, enterprise (Pichette)
CEOs Schmidt and Page financial model: Build great products and then same financial discipline. (Pichette)
Operating expenses:  we are really funding and accelerating with discipline our revenue growth (Pichette)
If we don't see a great ROI, you won't see us spending the money. (Pichette)
Search is a unique product that has very, very high margin (Pichette)
Overall advertising market, $600 billion to $700 billion market globally (Arora)
We are trying to create a multi product sales force across 50 different countries (Arora)
We are getting ourselves to be able to sell display with special emphasis on rich media and video (Arora)
Google uses well over 200 signals in terms of how we think about ranking today (Huber)
Continued focus on social as one of the 200 signals and just get this rich as possible of an answer across the board. (Pichette)
Everybody that has a cost center has to demonstrate productivity (Pichette)
There's ability to buy audiences and to do much more specific targeting (Wojcicki)
We are interested in long-form premium content in the longer-term role of YouTube. (Huber)
In terms of phones versus tablets, Android is relatively early on with tablets. (Huber)
I think you're going to see a lot more great Android tablet devices soon. (Huber)
We monetize video not just on YouTube but also rich media across the Google Display Network (Arora)


About Google

Google describes itself in press releases as, "Google's innovative search technologies connect millions of people around the world with information every day. Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is a top web property in all major global markets. Google's targeted advertising program provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout the Americas, Europe and Asia."

Google's Mission Statement: "Google's mission is to organize the world's information and make it universally accessible and useful. The first step toward fulfilling that mission came when our founders, Larry Page and Sergey Brin, working out of a Stanford University dorm room, developed a new approach to online search that quickly spread to information seekers around the globe. Google is now widely recognized as the world's largest search engine -- a free service whose utility and ease of use have made it one of the world's best-known brands almost entirely through word of mouth from satisfied users."


Charts and Analysis!

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The Google Q1 2011 earnings transcript was utilized to verify and confirm participants' statements
Thanks to Seeking Alpha for their efforts to democratize financial information on the Internet
Google Audio
Google has not posted the earnings call audio on YouTube as with past earnings calls


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