Wednesday, August 17, 2011

Google Q2 2011 Earnings Conference Call (Review) "Relentless momentum of the digital economy" GOOG

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Google reported Q2 2011 financial results on July 14, 2011




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 Q2 2011 Earnings Conference Call

Google Management Present at the 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, 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 had a great quarter with revenue up by 32% year-on-year and a new record for quarterly revenue at over $9 billion" Google Co-Founder and now CEO Larry Page opened the earnings call. "It's really exciting to be on the call today and share directly with you the progress we have made in my first quarter as CEO. As you have seen from our press release, we had a great quarter with revenue up by 32% year-on-year and a new record for quarterly revenue at over $9 billion. This substantially increased our velocity and execution this quarter. It's the key goal of mine since taking over as CEO. So I have created a new product-focused management structure with clear leader responsible for each area. New management team is working together fabulously and has already achieved a lot in just these three months." Page then discussed Google+. Page emphasized, "Focus and prioritization are crucial given our amazing opportunities." He said the Chrome browser has over 160 million users and that Android is activating 500,000 devices per day. Page said he sees Google products in three categories:
There is Search in our Ads products, the core driver of revenue for the company.
● Products that are employing high consumer success: YouTube, Android and Chrome. We are investing in these in order to optimize their long-term success.
● Then we have our new products, Google+ in commerce and local. We are investing in them to drive innovation and adoption.
Overall, we are focused on long-term, absolute profit and growth, as we have always been, and I will continue to have tight financial management we have had in the last two years, even as we were making significant investments in our future. Great companies are no greater than the efforts and ingenuity of their people. We're continuing to hire the best. Keeping them happy and well-rewarded is crucial to our future. All of us at Google will want to create services that people in the world use twice a day just like toothbrush. And we strive to make those services beautiful, simple and easy to use. That way we can provide huge benefit to the world.

CFO Patrick Pichette: "Continuing power of Google's product innovation, the relentless momentum of the digital economy" Patrick Pichette, Senior Vice President and Chief Financial Officer, then reviewed the financial results, which are also reviewed on the Google Financial Performance page. "We had obviously an excellent quarter with 32% year-over-year revenue growth in Q2, and it clearly demonstrate the continuing power of Google's product innovation, but also the relentless momentum of the digital economy. The strength continues to be driven by our core desktop search ads, but also increasingly, by new emerging areas just like the Mobile, Display, including YouTube and Enterprise that we regularly talk about. As Larry mentioned earlier, we continue to deliver growth with a disciplined agenda. This means investing and making sure that our resources are deployed wisely with focus and a balance between that short and long-term that Larry covered."

SVP Nikesh Arora: "Large advertisers continuing to spend more as they see more value in Search" Nikesh Arora, Senior Vice President and Chief Business Officer, provided, "a quick update on our business activities, which spans sales, partnership marketing, and customer service around the world in support of our product and revenue. we continue to drive revenues in our corner areas like Search, as well as new areas like Display, Mobile, and Enterprise. Core Search and Desktop has done very well this quarter, with Google.com accelerating and our large advertisers continuing to spend more as they see more value in Search." YouTube has over 3 billion views daily. Android has over 550,000 activations daily. 

SVP Susan Wojcicki: "135 million Android devices have been activated in total" Susan Wojcicki, Senior Vice President of Advertising, began, "This quarter, we brought 2 of the most popular mobile search innovations to the desktop, Voice Search and Search by Image. In addition to these changes, we released about 100 other quality improvements to the Search algorithm. More and more people are searching and using apps from Mobile phones, where Android has had terrific momentum. There are now 135 million Android devices that have been activated in total, up from 100 million just 2 months ago. There are also now over 400 different Android devices available globally. Android Market is also picking up momentum. It has over 250,000 different apps, and users have downloaded apps over 6 billion times. Smartphones are also becoming key to the shopping experience. Making shopping mobile and local is a vision behind Google Wallet and Google Offers."


Question and Answer Session

International Sales
(Arora) We've seen tremendous growth across pretty much all product areas. So the growth you're seeing in international is driven by Mobile, by Display, by Search.
Android
(Page) There were over 550,000 new Android daily activations previously. And there's over 400 such devices, 39 OEMs, 231 carriers in 123 countries, and over 78 open handset alliance partners. That velocity is only increasing. Our partners and developers are continuing to expand the Android ecosystem. We're really committed to Android and continue to support that platform and ecosystem and do it in a cost effective manner.
Patents
(Page) We have a number of intellectual property patents in progress not just already issued.
Management Restructure
(Page) I think we have a much more of a product-focused structure now, which I'm very excited about. I think that maintaining and improving our velocity and execution is a really noble goal for us.
Social Media and Search
(Wojcicki) From a targeting perspective, there are a number of signals that we use right now. Obviously keyword on Search, contextual, interspaced advertising, demographics, and social signals over time can be an important part of that.
Mobile Search
(Pichette) Mobile a bit like Search was in 2001, 2002, 2003. All these formats are so new that you know that there's so much more room for optimization on top of it.
Stock Compensation and Price
(Page) We're really focused on our long-term success as a business and the kind of things I mentioned already are absolute: overall profitability over the long-term and our revenue growth. We tend to focus much more on that, with a much more long-term view, than we do on our stock price.
Local Advertising
(Wojcicki) Local can be thought about 2 different ways. Local can be the large retailers who have many different points of presence. Then there's a separate bucket which are the small Joe's coffee shop example.


Google Q2 2011 Earnings Call

Earnings Call Larry Page, Patrick Pichette, Nikesh Arora and Susan Wojcicki participate in Google's Q2 2011 Earnings Call July 14, 2011.



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."


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The Google Q1 2011 earnings transcript was utilized to verify and confirm participants' statements
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