Google Investor: Google Q1 Earnings Disappoint (Financial Charts, Review) *EPS decreases to $7.04* GOOG

GOOG!

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

*Charts and commentary have been updated for Google Q1 March 2011 financial results*

Google Q1 Earnings Disappoint

Google Summary Q1 2011 Google Q1 financial performance was disappointing and below expectations. Google's financial position is very strong and strengthened QoQ. An increase in operating expenses, in particular research and development and a 10% salary increase for all employees, pulled down operating income and ultimately earnings per share. This is the initial quarter reported after the management restructure with co-founder Larry Page as CEO.

Google Income Statement Q1 2011 Google financial performance was disappointing with total revenues $8.6B, net income $2.3B, earnings per share $7.04, and operating cash flow per share of $9.72. From the prior quarter Q4 2010, QoQ, total revenues were up +1.60%, net income down -9.63%, and earnings per share down -9.86%. From the prior year quarter Q1 2010, these were up +26.57%, +17.54%, and +16.17%, respectively. From the prior quarter Q4 2010, gross margin of 65.76% was up slightly and both operating margin of 32.61% and net margin of 26.80% were down. Cash flow from operations per share of $9.72 decreased from the prior quarter Q4 2010. All of this data is summarized in the charts below.

Google Balance Sheet Q1 2011 Total assets increased +3.65% QoQ to a record $59.96B. The capital to assets ratio (total stockholders' equity divided by total assets) increased to a very strong 82.31%. Google is incredibly liquid with a current ratio (current assets divided by total assets) of 72.23%. Google has over $36B in cash, cash equivalents, and marketable securities! Capital expenditures dropped to $890M from the prior quarter of $2.55 billion, which was then primarily related to the purchase of our office building in New York City, as well as IT infrastructure investments, including data centers, servers, and networking equipment.

Google Financial Performance by the Quarters (Charts)

Google Earnings Per Share & Cash Flow from Operations per Share (Chart) Below is a chart of quarterly earnings per share and cash flow from operations per share. Both dipped in Q1 2011. Peak earnings per share were the prior Q4 2010 of $7.81. Peak cash flow from operations per share was the prior quarter Q4 2010 of $10.83. Recent chart data is:

Quarter, Earnings per Diluted Share, Cash Flow per Diluted Share

Jun10: $5.71, $6.47

Sep10: $6.72, $8.95

Dec10: $7.81, $10.83

Mar11: $7.04, $9.72

Google Total Revenues, Operating Income, and Net Income (Chart) Below is a chart of quarterly total revenues, operating income, and net income. Total revenues have increased for 8 consecutive quarters. Operating income decreased in the current Q1 2011 as a result of an increase in operating expenses. Net income also decreased in Q1 2011 because of the decrease in operating income. Recent chart data is:

Quarter, Total Revenues, Operating Income, Net Income

Jun10: $6.8B, $2.4B, $1.8B

Sep10: $7.3B, $2.5B, $2.2B

Dec10: $8.4B, $2.98B, $2.5B

Mar11: $8.6B, $2.8B, $2.3B

Google Gross Margin, Operating Margin, and Net Margin (Chart) Below is a chart of quarterly gross margin, operating margin, and net margin. Gross margin has increased for 4 consecutive quarters and the current gross margin of 65.76% is a multi-year high. The current, disappointing operating margin of 32.61% is the lowest since Q3 2008 (29.72%). The current, disappointing net income margin of 26.80% is the lowest since Q3 2009 (25.81%). Recent chart data is:

Quarter, Gross Margin, Operating Margin, Net Margin

Jun10: 63.83%, 34.68%, 26.98%

Sep10: 64.97%, 34.96%, 29.74%

Dec10: 65.09%, 35.33%, 30.13%

Mar11: 65.76%, 32.61%, 26.80%

Google Return on Assets (Chart) Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. The ROA dipped during the Global Recession then improved through Q1 2010. The ROA has been decreasing for 4 consecutive quarters and is now at a multi-year low (16.88%). Some investment operations are slightly inflating the balance sheet, effective Q3 2010, which reduces ROA slightly. Also, the huge cash, cash equivalents, and marketable securities - Google's cash reserves of $36 billion reduce ROA. In general, returns on these cash reserves are not as high as assets deployed to the core business, thus the asset mix has been skewed more and more to lower yielding cash reserves. Recent chart data is:

Quarter, Return on Assets

Jun10: 18.13%

Sep10: 17.84%

Dec10: 17.53%

Mar11: 16.88%

Google Growth Rates (Chart) Below is a chart of the quarterly (QoQ, Q/Q, quarterly change) growth rates for revenues and earnings per share. Google has been high growth company and stock but has now become a very large technology company ($59+ billion in total assets and $8+ billion in quarterly total revenues). Total revenues growth rate has been positive for 8 consecutive quarters. The earnings per share growth rate has been volatile, especially since December 2008. The chart below covers a long history of total revenues growth but only a short history of earnings per share growth. The rapid plunge of earnings per share and the subsequent rebound as a result of the Great Recession and subsequent recovery created some extreme percentages in December 2008 and March 2009 that obscure recent earnings per share data. Recent chart data is;

Quarter, Total Revenues Change %, Earnings Per Share Change %

Jun10: +0.66%, -5.78%

Sep10: +6.83%, +17.69%

Dec10: +15.84%, +16.22%

Mar11: +1.60%, -9.86%

Google Revenue Sources (Chart) Below is a chart of revenue sources, which consist of advertising and "other". Google is an advertising company, period, when it comes to cash flow. The criticism of Google is the lack of diversification. So far, advertising continues to generate 96%+ of revenues. Recent chart data is:

Quarter, Advertising Revenues, Other Revenues

Jun10: 96.22%, 3.78%

Sep10: 96.54%, 3.46%

Dec10: 96.77%, 3.23%

Mar11: 96.86%, 3.14%

Google Traffic Acquisition Costs (Chart) Below is a chart of traffic acquisition costs (TAC) as a percentage (%) of advertising revenues. This is a direct cost and the net is the gross profit before other expenses are allocated to cost of revenues. TAC has been trending downwards which means increased gross profit for Google. Recent chart data is:

Quarter, TAC as a % of Advertising Revenues

Jun10: 26.4%

Sep10: 25.7%

Dec10: 25.3%

Mar11: 24.5%

Google Geographic Revenues (Chart) Below is a chart of geographic revenues as a percentage (%) of total revenues and is limited to what Google chooses to disclose. International revenues accounted for 53% of Google's total revenues. Overall the geographic mix of revenues has not been volatile. USA and UK have declined slightly while Rest of World has increased slightly. Recent chart data is:

Quarter, United States, United Kingdom, Rest of World

Jun10: 48.21%, 11.29%, 40.50%

Sep10: 48.27%, 11.53%, 40.20%

Dec10: 48.05%, 10.40%, 41.55%

Mar11: 46.71%, 11.30%, 41.99%

Google Announces First Quarter 2011 Financial Results

MOUNTAIN VIEW, Calif. – April 14, 2011 – Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended March 31, 2011.

“We had a great quarter with 27% year-over-year revenue growth,” said Patrick Pichette, CFO of Google. “These results demonstrate the value of search and search ads to our users and customers, as well as the extraordinary potential of areas like display and mobile. It's clear that our past investments have been crucial to our success today--which is why we continue to invest for the long term.”

Google reported revenues of $8.58 billion for the quarter ended March 31, 2011, an increase of 27% compared to the first quarter of 2010. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the first quarter of 2011, TAC totaled $2.04 billion, or 25% of advertising revenues.

Google reports operating income, operating margin, 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 in the first quarter of 2011 was $2.80 billion, or 33% of revenues. This compares to GAAP operating income of $2.49 billion, or 37% of revenues, in the first quarter of 2010. Non-GAAP operating income in the first quarter of 2011 was $3.23 billion, or 38% of revenues. This compares to non-GAAP operating income of $2.78 billion, or 41% of revenues, in the first quarter of 2010.

GAAP net income in the first quarter of 2011 was $2.30 billion, compared to $1.96 billion in the first quarter of 2010. Non-GAAP net income in the first quarter of 2011 was $2.64 billion, compared to $2.18 billion in the first quarter of 2010.

GAAP EPS in the first quarter of 2011 was $7.04 on 326 million diluted shares outstanding, compared to $6.06 in the first quarter of 2010 on 323 million diluted shares outstanding. Non-GAAP EPS in the first quarter of 2011 was $8.08, compared to $6.76 in the first quarter of 2010.

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 and the related tax benefits. In the first quarter of 2011, the charge related to SBC was $432 million, compared to $291 million in the first quarter of 2010. The tax benefit related to SBC was $92 million in the first quarter of 2011 and $65 million in the first quarter of 2010.

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."

Headcount: On a worldwide basis, Google employed 26,316 full-time employees as of March 31, 2011, up from 24,400 full-time employees as of December 31, 2010.

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