Google just announced its Q1 earnings, reporting slight misses on both EPS and revenue.
Here are the numbers:
- Revenue: $US17.26 billion versus $US17.5 billion expected
- EPS: $US6.57 versus $US6.63 expected
Revenue is up 12% year-over-year.
The stock was up as much as ~4% after-hours, despite the misses. We saw the same thing last quarter: Even when Google doesn’t meet expectations, investors seem content with the company’s growth, even if it isn’t as fast as they expected. Google also said that revenue would have been higher if it weren’t for currency exchange rates — up 17% instead of 12%.
Cost per click, how much Google can charge for its ads, was down 7% year-over-year and the number of paid clicks was up 13%. Analysts had expected paid clicks to be up 15%.
However, Google provided a big explanation for its CPC break-down during the company’s earnings call.
Basically, he said that the popular theory that CPC is declining because advertisers don’t want to spend money on mobile ads is wrong. Instead, he said, CPC is declining overall because of the impact of YouTube ads, which don’t make as much money as regular ad clicks yet.
Here are the other important numbers:
- Google site revenues were $US11.9 billion, while Google Networks revenues were $US3.6 billion
- That brought the total advertising revenues to $US15.5 billion, up 11% year-over-year
- Other revenues, which includes Google’s enterprise business as well as Google Play Store revenues, were $US1.7 billion, up 23% year-over-year
- Non-GAAP net income was $US4.5 billion
- Operating expenses were $US6.5 billion
- Capital expenditures were $US2.9 billion and free cash flow was $US3.7 billion
- Google now has 55,419 employees, up from 46,170 at this time last year
Google has missed its EPS estimates in seven of the last nine quarters and its revenue estimates in six of them.
Here are the highlights from the earnings call:
This will be the last quarter where CFO Patrick Pichette will be leading the earnings — former Morgan Stanley CFO Ruth Porat takes the seat in May.
Pichette starts by blaming FX-headwinds for slower growth, and said that revenues would have been up 17% year-over-year if it weren’t for currency fluctuations.
He says that Google Play Store revenues drove the “Other” category.
He also just refuted the popular idea that Google’s CPC has been steadily declining, largely because advertisers don’t want to spend as much on mobile ads as they do on desktop ads, while more and more search traffic now comes from mobile.
CPC in Google’s core search business is actually growing, he says. The reason why CPC is declining is because YouTube’s ads are also included in that cost-per-click number. YouTube viewership is climbing and more people are “clicking” (aka watching) their ads, he says, but the ads on YouTube currently monetise at a lower rate than regular ad clicks.
“Excluding the impact of YouTube TrueView ads, growth in Sites clicks would be lower, but still positive and CPCs would be healthy and growing Y/Y,” Pichette said. “Really we have two positive stories here. First, as I mentioned earlier, we are experiencing strength in mobile search and the CPCs in our core search business are continuing to grow Y/Y.
“Second, viewership of YouTube videos and TrueView ads are growing significantly and YouTube’s contribution to our advertising revenues continues to grow at a strong rate Y/Y. We’re really pleased with how the YouTube business is progressing.”
Pichette says that Google continues to invest in its cloud computing business.
“Compared to 5 years ago, we can now deliver more than three times as much compute power for the same amount of power or money,” he says.
Google also talked about how it’s focusing more and more on mobile. Google has continued to try to find ways to improve the mobile web for both users and developers, as well as ways to get more data from apps.
“We now have 30 billion links within apps indexed,” Google says.
Pichette also said the company has seen real acceleration in YouTube and plans to expand its “Google Preferred” ad program into 10 new markets. The company says that 94% of its Preferred campaigns helped viewers remember ads 80% better.
When an analyst asked about Google Wallet, Google chief business officer, Omid Kordestani, said that he’s excited by how the industry continues to embrace mobile wallets overall, though he wouldn’t specifically comment on competition from Apple Pay.
Another question came out whether investors could expect any sort of cash giveback in the near future, but Pichette says there’s no news on that right now, but that the company questions what it should do with its money all the time.
Another investor asked about Google Maps and Waze. Google says that it has been focusing on gettings its Maps technology into more and more partner products.
When asked about Project Fi, the company’s new wireless service, Kordestani says that Google is very excited and “wanted to try this new vision of a fast and innovative” service. He clarified that Google sees Fi as fundamentally different than some of its other projects, like Project Loon — the former is a service, while the latter are products.
One analyst also questioned some of Google’s spending on products that aren’t part of its core business. Pichette insisted, as he did last quarter, that Google pays close attention to its spending on all of its projects, and isn’t afraid to cut things that aren’t worth their cost.
“This is a disciplined organisation,” he says. “We look at the facts. If something isn’t working we can tell.”
For example, he says, Google recently shut down its video tutorial service, Google Helpouts.
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