Larry Page looking down

[credit provider=”Bob Lee via Flickr”]

Wow!Google’s earnings numbers are out and it’s a surprising miss.

Revenue and earnings are lighter than Wall Street expected, and now the stock is getting punished, falling after hours, down as much as 10%.

On the earnings call, Google’s executives attributed the worse than expected results to a combination of things: a weak economy, a weak U.S. dollar, and some new ad formats.

Here are the key numbers from Google versus expectations where appropriate:

  • Gross Revenue: $10.6 billion versus $10.7 billion (Citi estimate, not Street)
  • Net Revenue: $8.13 billion versus $8.38 billion
  • Non-GAAP EPS: $9.50 versus $10.46
  • Non-GAAP Operating income: $4.04 billion 
  • Google sites gross revenue: $7.29 billion versus $7.52 billion (Citi estimate, not Street)
  • Google added 1,114 employees in the quarter
  • Google+ now has 90 million users
  • Google has $44.6 billion in cash on hand
  • Free cash flow in the quarter was $3 billion
  • Google+ has 90 million users. (What is a user? Active and engaged, or just signed up?)

We’re live blogging the conference call webcast. Everything in quotes is our paraphrase. Click here for the latest, or just refresh your browser.

BI Intelligence analyst Pascal-Emmanuel Gobry is blogging Google’s earnings call. BI Intelligence is Business Insider’s paid research service on the internet industry.

The problem with the numbers is that they’re just crappy. As Horace Dediu tweeted, CPC is down 8% q/q and TAC up 18%. Is it the crappy economy? Something else? Hopefully we’ll find out… 

4:31 It begins!

4:31 Larry Page, Patrick Pichette, Susan Wojcicki & Nikesh Arora attending.

4:33 Page: “I’m very happy with our results. … Very strong quarter. … We improved velocity and execution. … On Google+ we introduced a feature every day.” He’s rattling off all the cool new features on Google.

4:36 Page mentions that Google has shut down underperforming products, to focus on all the awesome products they have that work, like Chrome & Android.

Display is now a $5 billion revenue runrate business.

4:36 Page: 250 million Android devices in total, up 50 million from November. Over 11 billion downloads from Android market. “Wow.”

4:37 Page on Chrome: “People thought we were crazy–who wants another browser?” Chrome doing great, Gmail too. 

4:38 Page: 5000 new enterprise customers signing up every day.

4:41 CFO Pichette is on. Blames FX for a lot of the miss. 

4:41 Panda (“search improvements”) also impacted network revenue, Pichette says. 

4:42 CPC includes both searches and AdSense (the network); so it seems the miss is a combination of:

  • weak dollar;
  • Panda hiding lots of sites with AdSense that people clicked less on.

4:43 Pichette: Google increased spending on personnel and (!) advertising. Capex also up.

4:45 Chief Business Officer Arora on.

4:46 Talks about how awesome Google’s ad products are…

4:48 Arora: Brands like L’Oreal are moving more and more of their spending to display & YouTube from TV. (I’ll believe it when I see it.)

4:49 Arora: mobile growing. 

4:49 Arora: enterprise growing as well. Clients: BBVA, Tesco, governments, universities…

4:49 Arora: on international, plenty of countries are slowing; North America is up slightly; growth up in Spain, down in Germany. Europe generally is crappy, which is no surprise given the economic situation (and Europe is a huge part of Google’s business).

4:51 Susan Wojcicki comes on.

4:52 Wojcicki: Talks about “Search plus your world”, Google’s social search revamp that brings in content from Google+. 

4:53 Wojcicki: 20 improvements to ad quality this quarter. 

4:53 Wojcicki: Clicks up, CPC down: they can move this way. When you have more clicks, that can lower average CPC. The other reason was FX. And the final reason was mobile and emerging markets, where clicks are lower. 

Not sure what to think of those explanations. Yes, the FX environment was brutal, and those other factors probably played a role. But so did probably Panda and the crappy overall economy.

4:56 Wojcicki: Guess what: Google’s ad exchange and network are going great!

4:57 Wojcicki: Offers (Google’s Groupon clone) is doing great. Now live in 30 cities, doing some national deals.

4:57 Q&A!

UBS: did mobile usage change over the holidays? 

Arora: growing really fast, thanks to Android and tablets. “We are seeing tremendous mobile usage.” Over the holiday people searched for e-commerce & activities. 

UBS: Is the decline in CPC due to people going to mobile more? 

Wojcicki: It’s an aggregate number so don’t look too much into it. The biggest thing was FX. The other thing was a change in ad formats which increased clicks, but increased clicks can decrease average CPC. Those were the biggest, but there were plenty of other reasons.

UBS: Is the definition of display ad revenue the same as the previous number you gave?

Page: Yes.

Credit Suisse: How’s the international business going? Where does display revenue come from? 

Display includes lots of stuff, including YouTube & AdMob, but we don’t go into details. 

On the economy, “we had quite a solid Q4 performance.” “Europe was quite healthy despite the environment, because the secular shift from offline to online continues.”

Mark Mahaney, Citi: How’s the growth on YouTube? Advertising?

Pichette: YouTube growing fantastic.

Page: Advertising growing fantastic. 

Macquarie: How are you going to make money on Android? Is your revenue slowing because people are skipping Google, ie going to Amazon/Expedia to search for stuff?

Page: We’re in the early stages of monetizing Android. We do make money from search & display & the Android market on it. “Lots of potential for us to make money from Android. Hard to give you details, but I’m very optimistic.”

“We had such an amazing Q4 ’10 that Y/Y comparisons are going to be misleading.” So ignore the fact we missed, we had a rockin’ quarter!

Goldman: On the CPC, is it still going to be crappy next quarter? 

Lots of stuff we don’t control had an impact, like FX. We don’t give forward guidance on CPC. 

Doug Anmuth, JPM: More details on CPC–is it driven by shift on mobile?

“Yes. The short answer.” 

(So it sounds like it’s a combination of a bunch of stuff. Stifel Nicolaus just sent a note on GOOG earnings headlined “Expectations were too high”–and that sounds right. It was a good quarter, not great, but not crappy, but because expectations are so high, it sounds like this huge miss.)

Susan Wojcicki is going over the changes in the ad formats, like making them more visible and stuff, that drive more clicks, lower CPC, and are “revenue positive.” They test lots of ad formats and the ones that work they use more. 

Deutsche: 1) Can you talk about some new consumer products? 2) Can you talk about mobile distribution costs? 

Page: (Ask him to talk about new products? Boy, he’ll hate that!) We’re always working on new stuff, but I’m not going to necessarily advertise that. We just want to make sure we’re more concentrated and we create amazing products. 

Arora: mobile distribution is fine.

Morgan Stanley: 3rd party data suggests paid clicks are growing faster than free clicks. Is search quality improvement the driver? 

We don’t like to talk about 3rd party data. But that said, people are spending and shopping more online. “All of these things are hitting records. We’re seeing the transition from offline to online. As we explore formats that really work well for both advertisers and users, you should see more clicking, and that’s going to weigh CPC down but overall it makes everything better.” So it’s all cool, guys. 

Wells Fargo: (Wells Fargo has equity analysts? We kid because we love.) What’s the vision on how G+ can improve engagement across Google? Do you think Facebook and Twitter will open up their data and you’ll integrate it? 

Page: We want to make our products better by understanding people. That’s why we call it Google+. So we take it across many properties, like the fact you see G+ in search results. 

With regard to other companies, we’d love to be able to use more of that data, but they’ve been walling it off. 

RBC Capital Markets: (There’s a running joke now about not asking jokes on CPC. The Google guys are tired of talking about it.) On Google Offers: it seems scale is an advantage in the daily deals space; why are you guys are you only in 30 markets, why aren’t you scaling this up? 

As it makes sense to roll out more markets, we will. What matters right now is really understanding the kind of stuff that works. “As we expand as it makes sense, we will do it with that knowledge.”

Susquehanna: You guys are hiring slightly less slowly, why?

Tiny funny moment when Pichette tries to quote Page, and Page cuts in and corrects him, quoting himself precisely. Page had said that last quarter Google had reached “the edge of what’s manageable” in terms of hiring, so they slowed down a bit this quarter. 

Jefferies: Google Wallet! (Oh yeah, forgot about that.) What’s up with that? And on MMI, are you going to be in the phone business, really? REALLY? (That wasn’t the question, but that was the subtext.)

Google Wallet: we want to be in products people use every day, and people use their wallets every day, so we’re going to keep investing in this. (Boilerplate. Translation: it’s not working right now, but it’s a huge juicy market, so we’ll keep trying.)

Page: We’ll break out Motorola separately so it doesn’t affect margins and the like. We’ve been very clear that Android will remain open, and Motorola will be like any OEM. We’ve done a great job managing our partner ecosystem “and I expect we’ll continue to do so.” (What an open ecosystem where there’s a “manager” of the ecosystem. Ahem.)

…And that’s a wrap! Thanks everyone!