Let’s set the stage. Larry Page is at the helm of Google. Sergey Brin, meanwhile, is riding around in New York City’s subways wearing Google Glass eyewear - about which, someone took a picture of him down there that went viral. Was it a publicity stunt? Perhaps... Hmm. We have to wonder who has the better role these days among the two. Not that Google puts much concern or worry into its earnings calls. Regardless, none of this influences the mood of Wall Street each time it is Google’s turn to announce its quarterly earnings. The stock just seems to drop no matter what is going on though the last time around it did miss earnings estimates by a good bit.
In fact the stock has regularly dropped immediately following each of its last 3 calls. So where is GOOG sitting just about an hour before the call? Well, it’s down from a recent high of $741.48 on January 10, 2013, currently sitting in the neighborhood of $703, plus or minus a dollar.
Last Friday the company publically noted to Wall Street that their estimates for the quarter were “rather high” to put it in plain English. Google suggested that Wall Street analysts may not have properly accounted for the company’s recent sale of its Motorola set-top box division.
Aside from that, there hasn’t been anything overtly bad financially or from a product perspective coming out of the company. And Android is riding very high. So why the drop? Why do financial analysts jump for joy following great news and feel in the dumps following bad news? The real question is, why don’t they make the right calls in the first place and avoid those unbelievable highs and the sudden drops that are based on the sort of hand wringing that followed, say, Facebook’s IPO? Such mysteries run deep.
In any case, consensus analyst estimates project Google to report fiscal Q4 2012 earnings of $10.47 a share, and revenue of $12.3 billion. One issue that analysts have – though it’s the kind Google doesn’t worry about – is that expenses may run ahead of earnings on a percentage basis – lower margins are something the analysts really hate.
Where will GOOG end up after the call? We’ll see, but so much for setting the stage.
Google's revenue in its core Internet business increased 22 percent to $12.91 billion in the fourth quarter. The company reported consolidated revenue that includes its Motorola Mobility mobile phone business of $14.42 billion. Consolidated net income for Q4 was $2.89 billion or $8.62 per share, compared to $2.71 billion, or $8.22 per share, for the same period last year. As of December 31, 2012, cash, cash equivalents, and marketable securities on hand for Google were $48.1 billion.
“We ended 2012 with a strong quarter,” Larry Page, CEO of Google noted. “Revenues were up 36 percent year-on-year, and eight percent quarter over quarter. And we hit $50 billion in revenues for the first time last year – not a bad achievement in just a decade and a half. In today’s multi-screen world we face tremendous opportunities as a technology company focused on user benefit. It’s an incredibly exciting time to be at Google.”
It certainly is a positive statement, and perhaps Brin has sending him secret high fives via Google Glass. Page also noted that he’s close to being satisfied (though he acknowledged he’s known for never being satisfied) with the new technology and apps Google created in 2012 – and used the “beautiful” word a number of times. He also took particular pleasure in noting that Google’s iOS apps are hitting it big on the iPhone.
Google reports both GAAP and non-GAAP numbers, and we will provide them here.
GAAP operating income in the fourth quarter of 2012 was $3.39 billion, or 24 percent of revenues. This compares to GAAP operating income of $3.51 billion, or 33 percent of revenues, in the fourth quarter of 2011.
Non-GAAP operating income for Q4 2012 was $4.27 billion, or 30 percent of revenues. Non-GAAP operating income was $4.04 billion, or 38 percent of revenues, in the fourth quarter of 2011.
GAAP net income including net loss from discontinued operations in the fourth quarter of 2012 was $2.89 billion, compared to $2.71 billion in the fourth quarter of 2011. Non-GAAP net income in the fourth quarter of 2012 was $3.57 billion, compared to $3.13 billion in the fourth quarter of 2011.
GAAP EPS including impact from net loss from discontinued operations in the fourth quarter of 2012 was $8.62 on 335 million diluted shares outstanding, compared to $8.22 in the fourth quarter of 2011 on 329 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2012 was $10.65 – which beats the consensus estimates of $10.47 we noted earlier, compared to $9.50 in the fourth quarter of 2011.
On a consolidated basis, Google’s revenues for fiscal Q4 2012 were, as Page noted, $14.42 billion, an increase of 36 percent compared to the fourth quarter of 2011. Google’s revenue from advertising was $12.91 billion, or 89 percent of consolidated revenues, in the fourth quarter of 2012, a 22 percent increase over fourth quarter 2011 revenues of $10.58 billion.
Traffic acquisition costs (TAC), the portion of revenues shared with Google’s partners, increased to $3.08 billion in the fourth quarter of 2012, compared to $2.45 billion in the fourth quarter of 2011. TAC as a percentage of advertising revenues was 25 percent in Q4 2012, compared to 24 percent in the fourth quarter of 2011.
Net cash from operating activities in the fourth quarter of 2012 totaled $4.67 billion, compared to $3.92 billion in the fourth quarter of 2011. In Q4 2012, capital expenditures were $1.02 billion, the majority of which was for production equipment, data center construction and facilities-related purchases. The company noted that it expects to continue to make significant capital expenditures.
There wasn’t much in the way of guidance – aside from the issue of Motorola and the fact that it will continue to make it difficult to really say what the ultimate financial outcome will be.
Detailed financial information is downloadable as a PDF for those looking for every financial detail.
What does it all mean?
The bottom line is that the numbers are good. There is strong performance across the board, and Page called out Google Play as performing well above expectations. Never the less, Motorola continues to weigh Google down – the investment to date continues to be a drag and Google continues to lose money on the deal. The company did point out that it “inherited an 18 month Motorola pipeline we are still working through.” The message? Give Google a bit more time to straighten it out.
So what is the stock doing? Clearly they got the message to give the company a bit more time. In after hours trading at roughly 5 pm the stock is up $33.15 to $736.02 or 4.72 percent. Clearly we have happy campers today.
Microsoft meanwhile – which remains utterly glued to that average $27 share price – where it has been for a decade now, can scratch its head (we’ll be reporting MSFT earnings on Thursday). On Wednesday the big report – from Apple – will arrive. That is the event we are now waiting for.
Edited by Amanda Ciccatelli