Google made its earnings numbers yesterday, actually coming in above expectations. Total revenues were $5.5 billion, 3 percent above the same period last year and flat with the first quarter (when sequential revenues actually declined). Net revenues, which are the revenues which actually go to Google after they pay off AdSense and AdWords partner sites via traffic acquisition costs (TAC), came in at $4.07 billion. That was slightly above the Street consensus of $4.05 billion (see Citi’s cheat sheet below). Non-GAAP earnings came in at a respectable $5.36 earnings per share, well above the $5.05 Street consensus.
Investors should be ecstatic, right? Yet the stock is down $15 right now from yesterday’s close, to about $428. Some of that is selling on the news that advertising revenues have “stabilized.” But if you take a deeper look at the numbers, it looks like Google’s earnings strength has more to do with cost-cutting than with revenue growth.
Google ended the quarter with 378 fewer employees than in March, 2009 (total headcount was 19,786). Some of those might have included the 200 sales jobs it announced it would cut at the tail end of the first quarter. Google was able to reduce its sales and marketing costs by 3 percent and of its general and administrative costs by 23 percent from last year. The latter translated into $110 million in savings. All of this cost containment certainly helped operating income rise 19 percent (to $1.9 billion), when net revenues were flat.
Google also put a major squeeze on capital expenditures, which came in at $139 million (80 percent lower than a year ago). That helped free cash flow increase 37.5 percent to $1.5 billion from a year ago, but that was still down $517 million from the first quarter. And when you back out the CapEx numbers the actual net cash coming from operations declined 9 percent to $1.6 billion.
Other key metrics:
Paid clicks were up 15 percent year-over-year, but down 2 percent from the first quarter.
Cost per click ($0.42 on average) was down 13 percent from a year ago but up 3 percent from the first quarter.
YouTube close to profitability: On the conference call, Google reported that monetized views on YouTube had tripled and that profitability for the service is in sight.
If you ask Adsense publishers, they’ll probably tell you Google squeezed their payments as well. Many publishers believe Google is taking a bigger cut of the pie, leaving publishers with less and less. Of course, it’s impossible to ever know for sure.
I always wonder how much they take for the cut, it is hidden, so not fair.
I guess Google had to make those tough choices in order to withstand this Recession. I hope its not true what you said about Adsense as its one of my main income streams.
Why should google give you more? Are you going to run off to Yahoo or something?
lewl.
Surprised to see that YouTube is almost hitting profitability. It is surprising to see that ads are covering the expenses of two hour videos being uploaded every minute. I don’t know if they are hyping this Youtube profitability news or is actually true.
where do you see this?
I’m not seeing it anywhere. I was just thinking they might be hyping this. Youtube will reach profitiability soon is a very general statement. They didn’t say in the next three months or year. Soon can by anytime. Also how can Youtube reach profitability, if the overall ad revenue is dropping in adwords. Probably they will say, if Youtube doesn’t reach profitability soon, it is because of the “economy:” another excuse on and on. It doesn’t really make sense. I think usually companies give the bad news and some kind of good news so that the stock doesn’t drop suddenly in their quarterly results if the expectation is high. I know google is having a hard time making money right now like other tech companies.
so google is not only experiencing (slight) growth amid recession but they’re also smart enough to cut down on expenses. why shouldn’t investors be happy?
let’s hope that after ’stabilizing’ ecpms will go up again … it’s been a very bad year
“why shouldn’t investors be happy?”
The valuation. It takes growth into consideration. The market cap is $135B on a $5.5B/qtr company. Where’s that profit growth going to come from?
you got me on that. However the market cap was huge even last year. obviously investors believe google hasn’t lost its potential
For investors, the question is how much more squeezing can they do? Capex spend is, in particular, a very easy tap to turn off (stop spending on servers/datacenters). They’ve turned that down for the last two or three quarters, but with only $139m capex spend this quarter, they might well have run out their ability to control their earnings by using that knob.
So — what will happen next quarter?
NPR stated quote “better than expected earnings” this year. now we know why…
At least they’re saving money and making money, unlike CIT (screwed!)
Goog has a PE Ration of 31…. they better hope the economy turns very soon..and not just bottoms
Um, have you seen FedEx’s numbers? http://www.goog...&q=NYSE:FDX
Google wont be having their annual employee East Coast Ski trip once again next year because of the spending cuts at Google .
who cares?
Saving spending on “silly” expenses is how any company will make money long term right now.
Thank god, nobody stole Google’s reports. Else, TC would have tried to profit out of it. I was never this agry on anybody, I strongly protest the way TC handled twitter’s stolen documents.
agry=angry
You’re a tool, my friend.
not only tool… but a sensible tool.
Wow, crazy to see how they cut back
Google will be able to print money because they own advertising from beginning to end. I’ll try to structure my points below.
- They are considered the first place to spend money if you’re looking to start a new company and want to reach a bunch of people quickly
- People hope that their site gets indexed by Google so they can get SEO traffic
- Google owns one of the largest display networks in the world
- Google owns one of the largest affiliate networks in the world
- No one knows what percentage they get from AdSense clicks
All of these factors give Google a lot of levels to tweak to help juice more money out of advertisers. Once they figure out how to tweak stuff without people noticing is when they’ll start really printing. For the time being they don’t need to but if you see your CPC’s jump or your adsense revenue drop — dont’ immediately think it’s the “market” it just might be Google trying to make more profit.
Eric, You are just a reporter for techcrunch. Dont try to put your BS on TC and just a wanna be financial analyst . Get some good story instead of this crap.
Monetize Youtube better, by just letting me display ads on my Youtube videos. Google, why can’t I? Just because I am a Danish resident?
I wish we built a Google in Denmark and then we would be able to exclude all those Americans from monetizing their stupid videos.
Once Google starts _really_ monetizing Youtube, it will double Google’s revenue numbers overnight, at least.
well, at least I increased my daily spending from $100 to $500 on Google Adwords, Yahoo and MSN are just way behind, negligible
“80% lower”….wtf does this even mean? does it mean it was 20% of last years figure (minus 80%, the same way as “80% more is pluss 80%)?
Why not express it as a percent of what it was (e.g. $100 is 50% of $200 so is 50% of what it was).
earn billions, yet they are too miserly to actually pay a few grand for images, they have go and keep asking artists for them for free.
Watch out now
this was not expected from google.
Just cant stop my self to comment on your blog. Good post.
“monetized views on YouTube had tripled and that profitability for the service is in sight”
“in sight”, as in 1 month, 1 year or 1 decade from now?!
very smart for google to trim the fat and prop up themselves in this recession. of course they didn’t/haven’t been making money where it counts since it’s very hard to do now, but good for them to realize that the way to keep themselves afloat now is to spend carefully, squeeze their already tapped in connections and get rid of people. about the youtube thing…i’m not a frequent youtube user but even i notice when i go there that their indexed searches is working for them, right along with the ads, the ads streamed in a video link before the actual video you want to see starts playing, and their spotlight videos some of which are directly sponsored by paying companies all benefit them.
Show me one ad network where customers and affiliates don’t accuse them of squeezed or skimming.
On the other hand, Adwords publishers are screaming on high cpc.
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