Monday, October 3, 2011

Google to Announce Earnings on Thursday, October 13 (Charts) *Financial Performance Review* GOOG


Google (GOOG) will report Q3 2011 financial results on Thursday, October 13

Google (GOOG) Financial Performance Review

Google will report Q3 2011 financial results on Thursday, October 13, after market close. The conference call will be at 1:30 p.m. PT.

Google financial performance charts for prior quarters have been posted on the Google Financial Performance page along with additional quarterly commentary and will be updated for this next quarterly report. The charts are also lower in this post.

The Google financial performance charts are:
Google Performance by the Quarters
Earnings per Share (Diluted) and Cash Flow per Share
Total Revenues, Operating Income, Net Income
Gross Margin, Operating Margin, Net Margin
Return on Assets
Total Revenues and Earnings per Share Growth YoY
Revenue Sources
Traffic Acquisition Costs
Geographic Revenues
Operating Expense Ratio

Google Future and Past Financial Performance

Earnings per Share
Yahoo Finance Analysts Estimates: $8.75 avg, $8.09 low est, $9.27 high est, 33 analysts
Prior Quarter: $7.68
Prior Year: $6.72
Google Outlook: not provided

Total Revenues
Yahoo Finance Analysts Estimates: $7.19B avg, $6.66B low est, $7.44B high est, 28 analysts
Prior Quarter: $9.03B
Prior Year: $7.29B
Google Outlook: not provided

Prior Q2 2011 Financial Results
When Google reports calendar Q3 2011, the 3 months ended September, financial results on October 13, Google should meet or beat various prior quarterly results. These financial results are charted on the Google Financial Performance page. These prior quarterly GAAP financial results were:
Total Revenues $9.03B
Operating Income $2.88B
Net Income $2.51B
Earnings per Share - Diluted $7.68
Cash Flow per Share $10.79
Gross Profit Margin 64.86%
Operating Income Margin 31.92%
Net Income Margin 27.75%

Overall, Q3 2011 is expected to exceed prior Q2 2011 financial results and easily beat YoY. Google should be close to the analysts' average EPS of $8.75. For Q3 2011, Google should  beat QoQ on Total Revenues, Operating Income, Net Income, Earnings per Share, and Cash Flow per Share. Any misses will be a disappointment and ramp down expectations for both Google and CEO, Co-Founder Larry Page. Google should meet QoQ on Gross Profit Margin, Operating Margin, and Net Income Margin. Both Gross Profit Margin and Operating Margin dipped in the prior quarter. The detailed quarter by quarter charts are on the Google Financial Performance page.

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. Recent chart data is:
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 annual (YoY, Y/Y, annual change) growth rates for revenues and earnings per share. Google, as with some other technology companies, has an annual cyclical high in Q4 and an annual cyclical low in Q1. Therefore, comparing YoY growth rates best reflects Google's growth. Google has been a 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). The Total Revenues Growth rate has been positive since at least the QE December 2006. The Earnings per Share growth rate has been volatile, especially since December 2008, but has been positive for 10 consecutive quarters. The chart below covers the recent history of total revenues growth and earnings per share growth. Recent chart data is:
Quarter, Total Revenues Change %, Earnings Per Share Change %
Jun10: +23.48%, +22.53%
Sep10: +22.56%, +30.99%
Dec10: +26.46%, +27.41%
Mar11: +26.57%, +16.17%
Jun11: +32.35%, +34.50%

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 generally trending downwards and now 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 by quarter and is limited to what Google chooses to disclose. International revenues accounted for 53.97% of Google's total revenues in the latest quarter reported, Q2 2011. This is an increase from the 51.97% reported prior YoY quarter. Overall the the Rest of the World is gaining on the United States while the UK has increased slightly. This appears to be the longer-term trend as Google expands outwards from the USA and UK. Recent chart data is:
Quarter, United States, Rest of World, United Kingdom
Jun10: $3.3B, $2.8B, $770M
Sep10: $3.5B, $2.9B, $840M
Dec10: $4.1B, $3.5B, $878M
Mar11: $4.0B, $3.6B, $969M
Jun11: $4.2B, $3.9B, $976M

Google Operating Expense Ratio (Chart) Below is a chart of the quarterly operating expense ratio, which is operating expenses divided by total revenues. The current Operating Expense Ratio of 32.94% continues historically very high. The OER chart average of 29.00%. This indicates in the current QE June 2011 both slightly increased efficiency plus a slightly higher proportion of revenues reaching the bottom line, net income and earnings per share. Recent chart data is:
Quarter, Operating Expense Ratio
Jun10: 29.15%
Sep10: 30.02%
Dec10: 29.76%
Mar11: 33.15%
Jun11: 32.94%

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