Thursday, July 14, 2011

Google Reports Strong Q2 Financial Results (Financial Charts) *Record revenues, net income & EPS increase* GOOG

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Google reported calendar Q2 2011 financial results on Thursday, July 14, 2011
*Charts and commentary have been updated for Google Q2 June 2011 financial results*


Google Reports Strong Q2 Financial Results *Record revenues, net income & EPS increase*

Google Summary Q2 2011 Google Q2 financial performance was strong and improved QoQ and YoY. Next quarter, Q3, should exceed Q2 and Q4 is projected to be another annual cyclical high. Google's financial position continues very strong and stable. An increase in operating expenses, reflected in a downtrending operating margin, is the negative for Google. The gross profit margin also dipped this quarter. This is the second quarter reported after the management restructure with co-founder Larry Page returning as CEO. CEO Page redeemed himself after the disappointing prior Q1 2011 financial results. Return on assets continue a moderate downward trend and is now 16.74%. Google is the #2 global brand, behind Apple. International sales are now 53.97% of total revenues, up from 53.29% QoQ and 51.79% YoY.

Google Income Statement Q2 2011 Google financial performance was record total revenues $9.03B,  near-record net income $2.88B, near-record earnings per share $7.68, and near-record operating cash flow per share of $10.79. From the prior quarter Q1 2011, QoQ, total revenues were up +5.26%, net income up +9.01%, and earnings per share up +9.09%. From the prior year quarter Q2 2010, these were up an impressive +32.35%, +36.14%, and +34.50%, respectively. From the prior quarter Q1 2011, gross margin of 64.86% was down slightly, operating margin of 31.92% was down slightly, and net margin of 27.75% was up slightly. Cash flow from operations per share of $10.79 increased from the prior quarter Q1 2011. All of this data is summarized in the charts below.

Google Balance Sheet Q2 2011 Total assets increased +8.17% QoQ and +35.00% YoY to a record $64.86B. The capital to assets ratio (total stockholders' equity divided by total assets) decreased to a still very strong 80.16%, but this is a multi-year low and had been as high as 90%+ in 2006. Google is incredibly liquid with a current ratio (current assets divided by total assets) of 71.60%, but this is the lowest since Q3 2009 (69.90%). Google has over $39 billion in cash, cash equivalents, and marketable securities! Capital expenditures increased slightly to $917M from the prior quarter of $890M, which was primarily related to "land and building purchases and 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, but rebounded in Q2 2011. Peak Earnings per Share continues to be the prior Q4 2010 of $7.81. Peak Cash Flow from Operations per Share continues to be 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
Jun11: $7.68, $10.79


Google Total Revenues, Operating Income, and Net Income (Chart) Below is a chart of quarterly total revenues, operating income, and net income. Current Total Revenues are at an all-time high and have increased for 9 consecutive quarters. Current Operating Income is just below the all-time high of $2.98B in prior Q4 2010, but increased QoQ. Current Net Income also is just below the all-time high of $2.54B in prior Q4 2010, but increased QoQ.
Quarter, Total Revenues, Operating Income, Net Income
Jun10: $6.8B, $2.4B, $1.84B
Sep10: $7.29B, $2.55B, $2.2B
Dec10: $8.44B, $2.98B, $2.54B
Mar11: $8.58B, $2.796B, $2.298B
Jun11: $9.03B, $2.88B, $2.51B


Google Gross Margin, Operating Margin, and Net Margin (Chart) Below is a chart of quarterly gross margin, operating margin, and net margin. Current Gross Margin of 64.86% dipped to a 4-quarter low, after increasing for 4 consecutive quarters. Current Operating Margin of 31.92% is disappointing, an 11-quarter low, the lowest since Q3 2008 (29.72%). This is the second quarterly decrease. The current Net Income Margin of 27.75% is an increase QoQ, as the prior Q1 2011 was an 8-quarter low of 26.80%. 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%
Jun11: 64.86%, 31.92%, 27.75%


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 5 consecutive quarters and is now at a 7-quarter low (Q3 2009 = 16.74%). 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 $39 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 increasingly 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%
Jun11: 16.74%


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 9 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%
Jun11: +5.26%, +9.09%


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%
Jun11: 96.57%, 3.43%


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 for 4 consecutive quarters 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%
Jun11: 24.2%


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 54% of Google's total revenues. Overall the geographic mix of revenues has not been volatile. USA is decreasing slightly, UK is mostly stable to decreasing slightly, and the Rest of World is increasing. This appears to be the longer-term trend as Google expands outwards from the USA and UK. 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%
Jun11: 46.03%, 10.81%, 43.15%



Google Announces Second Quarter 2011 Financial Results

MOUNTAIN VIEW, Calif. - July 14, 2011 - Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended June 30, 2011. “We had a great quarter, with revenue up 32% year on year for a record breaking over $9 billion of revenue,” said Larry Page, CEO of Google. “I'm super excited about the amazing response to Google+ which lets you share just like in real life.

Q2 Financial Summary

Google reported revenues of $9.03 billion for the quarter ended June 30, 2011, an increase of 32% compared to the second quarter of 2010. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the second quarter of 2011, TAC totaled $2.11 billion, or 24% 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 second quarter of 2011 was $2.88 billion, or 32% of revenues. This compares to GAAP operating income of $2.37 billion, or 35% of revenues, in the second quarter of 2010. Non-GAAP operating income in the second quarter of 2011 was $3.32 billion, or 37% of revenues. This compares to non-GAAP operating income of $2.67 billion, or 39% of revenues, in the second quarter of 2010.
GAAP net income in the second quarter of 2011 was $2.51 billion, compared to $1.84 billion in the second quarter of 2010. Non-GAAP net income in the second quarter of 2011 was $2.85 billion, compared to $2.08 billion in the second quarter of 2010.
GAAP EPS in the second quarter of 2011 was $7.68 on 326 million diluted shares outstanding, compared to $5.71 in the second quarter of 2010 on 322 million diluted shares outstanding. Non-GAAP EPS in the second quarter of 2011 was $8.74, compared to $6.45 in the second 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 second quarter of 2011, the charge related to SBC was $435 million, compared to $309 million in the second quarter of 2010. The tax benefit related to SBC was $91 million in the second quarter of 2011 and $70 million in the second 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 28,768 full-time employees as of June 30, 2011, up from 26,316 full-time employees as of March 31, 2011.


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