Photo: Loic Le Meur via Flickr
Google announced Q3 earnings this afternoon, and the company beat expectations on almost every front.The stock is up more than 6% after hours on the news.
Gross revenue was $9.72 billion, non-GAAP EPS was $9.72 (yes, the same number), and GAAP EPS came in at $8.33.
The company added more than 2,000 employees during the quarter, which meant that expenses were more than $1 billion higher than last year. That continues a trend seen in the first two quarters of this year.
On the company’s earnings call, CEO Larry Page said that Google was “at the edge” of its hiring capacity, which means it can’t hire any FASTER. But it also sounds like headcount growth would continue at this rate for a while.
Android continues to be a huge success, and Page said it’s on track to pull more than $2.5 billion in revenue this year. Page dismissed threats of litigation from Microsoft against Android resellers, saying simply that it hasn’t affected Android growth at all yet, and that Microsoft would alienate its potential Windows Phone partners by forcing them to sign these deals.
He refused to comment on Google’s media strategy — some reports have suggested that Google might be making a play to own more content — saying that it’s “hard to talk about the future. He also declined comment on the fiscal impact of the impending Motorola deal, since it’s under regulatory review.
Google also announced that its social network, Google+, now has more than 40 million users.
Scroll down for our coverage of the earnings call.
Here’s what Google reported vs. expectations:
- Gross revenue: $9.72 billion vs $9.60 billion expected (by Citi’s Mark Maheny)
- EPS: $8.33
- Non-GAAP EPS: $9.72 vs. $8.74 (consensus).
- Net revenue (- TAC costs): $7.51 billion vs. $7.21 billion (consensus)
- Net income: $2.73 billion
- Google Sites gross revenue: $6.74 billion vs $6.67 billion (Citi).
- Google Network gross revenue: $2.60 billion vs. $2.61 (Citi).
- Operating expenses: $3.28 billion, or 34% of revenues. That’s versus $2.19 billion, or 30% of revenue, last year. So it looks like the hiring spree is still ongoing. In fact, Google added 2,585 people during the quarter, bringing headcount above 30,000 for the first time.
Here’s our coverage of the earnings call:
Larry Page introduced the call by talking in general terms about the business (a full transcript of his remarks is here), and noted that Google+ now has more than 40 million users. No surprises so far.
He did say that Google is now expecting a $2.5 billion run rate on its mobile business.
1:42: Nikesh Arora is talking about the company’s advertising business. Display deals with agencies total more than $600 million over the last nine months.
Chromebooks — “beginning to see lots of interest.” But no numbers.
Marketing and partnership programs. “Get Your Business Online” program, help small businesses come online. Great for business, ad spending.
Google+ — again, no numbers.
1:50: Susan Wojcicki is on. Search had more than 100 launches. Preview feature — hover over search result and you get a large preview of the site.
Good example: search on “Metropolitan Museum Of Art.” Link to store, general information.
Flight search — enter SFO to JFK and you’ll see all flight options. (This came from Google’s acquisition of ITA.) “Think of this first version as the takeoff, not the final destination.”
AdWords Express — lets small advertisers start running keyword campaigns in just a few minutes.
Analytics improvements — more information about traffic means more spend from Web sites.
“Interest category marketing” rolled out to all advertisers at end of Q2. Look at types of pages a user visits, and associates browsers with categories like mobile phones or hybrid cars. Then advertisers show relevant ads to users across all sites.
Making it easier to set up video ads on YouTube, video campaign.
Users can now +1 ads. Ads that are socially annotated are more relevant for users.
Google Wallet shipped to Sprint Nexus S phones. “This morning I bought my latte using my phone as myw wallet.”
Now it’s time for Q&A.
Q: What are the impact of the new sophisticated ads? And softness in Western Europe, is that mobile or all areas?
A. Larry defers to Nikesh Arora. Improving ad formats great for users and advertisers, but he’s not commenting on profits.
Comment on Western Europe is compared with prior quarters. Mildly soft. Queries growing up, happy with mobile, happy with display, search query growth.
Q: Paid clicks grew a lot, but revenue didn’t grow as fast.
A: Susan Wojcicki. Really important to look at paid click growth and cost per click, both two factors together, as they move in opposite.
Arora is commenting on “other” revenue, that’s mostly about year over year impact of ITA.
Q. $2.5 billion run rate mobile revenue. Any more details? Search vs other advertising? What about headcount?
A: Larry Page — not going to break up more data. “We’re at the edge of what’s manageable with headcount growth.” Numbers consistent with last quarter. But we don’t give future guidance on that.
Q. What’s the opportunity for YouTube? And how fast are emerging markets growing, now big are they relative to each other?
A. Page says YouTube is a strong business with lots of upside. Arora, very happy with usage of our products in Brazil and other markets. But won’t give detail.
Q. How much growth in mobile impacted pageview growth, and how sustainable is that? And how close is cost per click on mobile vs traditional search?
A. Wojcicki. We don’t break out mobile’s impact on page growth or CPC. We can improve over time.
Page: mobile phones are just getting amazing. Our work there, other people’s work soon coming out. Our experience on phone could be better. The phone knows where you are, can help you even when you’re mobile. We see the experience on mobile improving.
Wojcicki: We can deliver advertisers location, say “this location is 1 mile away from you.” Lot of formats we can optimise.
Q. What steps can Google take to help defend the Android ecosystem on a big-picture basis in terms of patents? Second, what verticals performed well?
A. Page: we’re very excgtied about Android, we see our partners and whole ecosystem continuing to grow hugely. We see no signs the patent attacks are effective. We think other companies’ actions there wil alienate customers and other companies.
We announced our intention about Motorola, we’re serious about protecting Android ecosystem. We feel good about our efforts there.
Arora: In the US, travel and auto. Rest of the world, retail — not as strong in the US. In the UK, automobiles have been very strong. They’re a snapshot and reflection of the economy.
Pichette: Only non-secular event is seeing strength in CPU verticals (display).
Q: What about Google Offers? And more about Motorola?
Arora: we’ve expanded from one trial in Portland to 11 businesses. Now leveraging relationships with SMBs. Google Wallet also part of our strategy there.
Page: Motorola deal is under review, premature for us to comment.
Q: With vertical focus like travel, getting deeper into purchases. Non-stock cash compensation up 50% year over year. Is this new run rate, or was there one-time?
A. Pichette: Salary raises last year are flowing through. It’s a one-time item, changing plateau. It’ll flow through next year.
Page: Going back to 1st question. We really think of Google providing the right answers when you need them. Not necessary a Web site, very specific piece of info. It’s all about making search better across anything you do. We’ll do a better job of providing great user experience on more things over time.
Q: What do you think of Microsoft competition and patent strategy?
A. Page: continuing to resort to legal measures. Haven’t seen details. We’re looking forward to our announcements with Samsung next week, we see Android going gangbusters.
Q: In the mobile business, how do you structure rev sharing agreements relative to in-browser searches. Who are you paying for that distribution — carriers, phone makers, and how will that evolve. Follow-up — new devices layering on top of OS. If you look ahead, how does that evolve?
A: Page: very excited about Android ecosystem. Over 190m devices and growing fast. We’re very excited about structure we have now.
Arora: Many interesting models. Android open ecosystem, we’re partner-focused. In many cases, we work with partners — making Google Search part of services, allowing us to be ad partner. But we think there’s fair value transfer to whoever provides.
Page: We are good at doing those kinds of deals on the Web.
Q. Owning content in mobile could be a differentiator. Is that interesting to you?
A. Page — no comment on what we might or might not do. We’ve been very successful for a long time without owning content. Distributing content is good, too.
Q. How increase monetization in mobile? When are all these mobile efforts like Offers going to tie together?
A: Page — very early in mobile business. Lot of activity, user experience growing like crazy. We also want to balance total integration with really fast iterations, progress, experimentation. Unified look and feel on Google, making it more intuitive. Also experiments on new things.
Offers specifically, we think about our local business as “how do we help merchants and users get really good information, help merchants get the right users at the right time.”
Q. So what about run rate in other areas like YouTube?
A. Pichette — we had extraordinary quarter in mobile, that’s why we talked about it this quarter. But don’t expect details in future quarters. Not going to talk about YouTube in more detail.
Q. Comment on your broader media strategy. You’re not like cable carriers limited by geography. What about a multichannel video offering?
A. Page — It’s hard to talk about what we might do in the future. Lot of opportunity in providing better services for end users around media. We are in good position to help users find content and media they’re looking for. And to help content providers reach users and get paid, both through advertising and other ways.
Q. You shut 20 products, how much resource does that open up? Second, what level of Google+ users do you need to see to improve ROI.
A. Page — really had to streamline our business. Tough decisions on where we’re focusing. Not easy decisions. On Google+, very very early. Tremendous growth. Been out just slightly more than one quarter, and fully open for very small part. I encourage you to all try out Google+, sign up, talk to it. You will see data in search about what other people are doing. Those things can be very meaningful to you as a user.
Q. Chrome — how will you grow distribution, adoption, and how will this impact margin. Second, growth in Google Site revenues, where is that coming from, more search or more other areas?
A. Pichette — on the latter, the answer is yes, yes, yes. Yes YouTube, yes mobile, yes formats.
Arora — Chrome strategic. Marketing and distribution around getting Chrome in hands of users. A great experience in Chrome makes users use more Google services. Strategy not changing.
Page: I want to thank everyone for all the time spent with us. Thank all employees.
That’s a wrap.
Nothing about Motorola and its possible impact on margins next year — they just can’t talk too much about that deal while it’s pending.