Saturday, July 21, 2012

Google Earnings Review: Fundamentals Change With Motorola Acquisition

Google reported QE June 2012 financial results on Thursday, July 19

Google fundamentals have changed with the acquisition and merger of Motorola. CEO Larry Page immediately started talking about "Google Standalone", because Motorola is affecting performance negatively. That's fine, but the consolidated financial results, including Motorola, are what will prevail long-term, good or bad, and are reflected in the charts below.

Both the revenue mix and margin mix have changed. That is and will continue affecting the bottom line and earnings per share. Short-term this is a negative impact. The long-term impact is the uncertainty. One thing is certain: this is no longer the Google that Granny used to talk about.

The performance dip from the prior quarter is not surprising, Google reported all-time highs for total revenues, net income, and earnings per share last quarter. The 3rd and 4th calendar quarters are generally the strongest for Google on an annual cyclical basis. Solid gains were reported year over year and that's what counts for Google in QE June 2012.

Revenue growth, year over year, had slowed the past 2 quarters, but the $1.25 billion added by Motorola reversed the trend. Consolidated margins decreased significantly, also caused by Motorola. Operating income dipped last quarter on record revenues, the result of the gross profit margin dropping to a 7-quarter low and operating margin dipping to near a multi-year low. That was without and excluding Motorola. Now that downside margin pressure is significantly increased with Motorola.

Metric, QoQ Change, YoY Change
Total Assets: $86.05 billion, +12%, +33%
Total Revenues: $12.21 billion, +15%, +35%
Net Income: $2.79 billion, -4%, +11%
Earnings per Share: $8.42, -4%, +10%

"Google standalone had a strong quarter with 21% year-on-year revenue growth, and we launched a bunch of exciting new products at I/O – in particular the Nexus 7 tablet, which has received rave reviews," said Larry Page, CEO of Google. "This quarter is also special because Motorola is now part of the Google family, and we’re excited about the potential to build great devices for users."


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