Google has reported its third-quarter earnings.
The company beat on the top and bottom line and announced a monster buyback program, sending the stock soaring more than 10% after-hours.
Here are the most important numbers:
- Gross revenue: $US18.7 billion versus expectations of $US18.53 billion. That’s growth of 13% year-over-year.
- Adjusted EPS: $US7.35 versus analyst expectations of $US7.21 per share
Parent-company Alphabet has also authorised the company to repurchase up to $US5 billion of Class C stock. Technically, the stock buyback is $US5,099,019,513.59, which is the square root of 26 e to the 18th power — because there are 26 letters in the Alphabet, get it?.
“This decision is consistent with our overall capital management framework, and complements a disciplined capital allocation program,” Chief Financial Officer Ruth Porat said on the call. “Our primary uses of capital will, of course, remain capex and M&A across the breadth of our businesses.”
Porat writes in the release that Google is “excited about the opportunities ahead,” particularly thanks to it six products that now have more than 1 billion users globally. Those products are Search, Android, Maps, Chrome, YouTube, and Google Play. She highlighted growth in mobile-search revenue as being behind the solid growth.
She also shed some light on how Alphabet will report earnings next quarter: Google’s business will be reported in one section while everything else will be combined as “Other Bets.” Both segments will report revenue, profitability, and capital expenditures.
Here are the other important numbers for the report:
- Google site revenues were $US13.1 billion, up 16% year-over-year, while Google Networks revenues were $US3.7 billion, up 4% year-over-year
- That brought the total advertising revenues to $US16.8 billion, up 13% year-over-year
- Other revenues, which includes Google’s enterprise business as well as Google Play Store revenues, were $US1.9 billion, up 11% year-over-year
- Operating expenses were $US6.93 billion, up from $US6.1 billion in third-quarter 2014
- Headcount rose to 59,976, up 16% from 51,564 in third-quarter 2014
- Cash balance was around $US73 billion, with 58% of that overseas
Two of the most important numbers Google reports every quarter are cost per click, how much Google can charge for its ads, and paid clicks, how many times people click those ads. In the third quarter, aggregate paid clicks rose 23% year-over-year, while aggregate cost-per-clicks sunk 11% year-over-year.
The CPC decline isn’t surprising — that has been the trend for a while now — and was consistent with the 11% year-over-year change from last quarter, too.
Here’s a look at those numbers in charts:
Time for the earnings call!
Porat shed some light on Google’s geographic breakdown, since the company said that revenue growth would have been 21% year-over-year if it weren’t for foreign-currency fluctuations. US revenue was up 19% year-over-year, UK was up 10% YOY but would have been up 18% with fixed FX, and rest-of-world was up 7% YOY.
Porat also expanded its investment strategy moving forward.
“With respect to profitability, we remain focused on managing expenses within our control, while investing to support the growth areas we have in Google and Other Bets,” she said. “Segment reporting, by definition, provides greater insight into the profit dynamics within Alphabet.”
“There’s a real sense of energy across the company,” Google CEO Sundar Pichai says, before highlighting some Google products like Photos and Chromecast. The company recently announced that mobile search had surpassed desktop search, and said that India is the second area of mobile search after the US.
Pichai also said that Google has indexed more than 100 billion deep links within third-party apps, and said that 40% of searches now return app-indexed results in the top-five results.
He then highlighted three “emerging businesses” that he’s excited about: digital content through Google Play; the subscription service launched yesterday called YouTube Red; and its enterprise business Google for Work, which now has 1 million paying customers.
Now time for questions:
The first investor asked whether Google can continue to sustain its mobile search growth.
Porat’s answer: Definitely.
“We’re on very early innings,” she said.
She also said that desktop and mobile search have healthy growth.
Another analyst asked: “Can you share with us how you’re approaching budgeting versus how it was done last year?”
Porat reiterated about what she’s said before:
“Well, a couple of things. There’s been a very strong foundation here on budgeting and setting the envelope, and working with business leaders on what that envelope should be. Our priority remains revenue growth, which doesn’t give us a pass on rigorous attention to expense growth. We want to have reasonable but tight envelopes. We want to optimise all of our resources, that’s what it really comes down to.”
Pichai also talked about YouTube and how video is a “profound medium shift, especially in the context of mobile.” He says that Google has noticed advertisers moving more of their traditional TV budgets to YouTube — the company recently recommended 24%. He also said that the company plans to use more machine-learning to make mobile search even better.
When an analyst asked about Google’s cloud business, Pichai called it an “exceptional opportunity,” pointing out how Google has “tremendous experience” running cloud-based businesses, like itself.
“We’re investing a lot and playing for the long term,” he said.
Porat expanded even more on Alphabet, in response to a question: “We want Alphabet to be the best magnet for entrepreneurs.”
Pichai talked about machine learning, too.
“Machine learning is core to the way that we are rethinking everything we’re doing,” he said. “We believe we are state of the art here.”
He also said that the progress in the last two years has been dramatic, and that Google is applying machine-learning across all its products in a thoughtful manner.