Google's Fiscal Q4 and Full 2013 Financials - Huge Revenue Upswing, a Tiny Miss on Earnings...a Stock Split and Dividend

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Late yesterday afternoon Google announced its fiscal 2013 Q4 and full year financials. The full year and quarter ended on December 31, 2013. Relatively speaking it blew away consensus analyst estimates for Q4 2013 of $16.86 billion by $100 million, with quarterly revenue growth of 38.7 percent year over year. As we'll see shortly in more this comes in spite of its Motorola Mobility group (which is about to become Lenovo's) weighing earnings down.

Even so the company missed on consensus analyst estimates for earnings, with a reported non-GAAP EPS of $12.01 coming in $0.28 shorts of expected EPS of $12.29. Stock based compensation jumped by $200 million in the quarter, which looks to us to be a factor GAAP-based EPS (non-GAAP EPS excludes the costs of stock-based compensation). The bottom line is that there are no underlying financial "structural growth" issues that contributed to the EPS miss - so hey, the miss is OK. No matter - the market and financial analysts don't really care about this particular earnings miss in the wake of significant ongoing revenue growth. Google is essentially continuing to fire on all cylinders.

The most interesting to us wasn't a "numbers" issue - rather it was that Google has finally announced a stock split, although how that split will take place is interesting. For those who do not recall, when Google first went public it created two classes of shares - "Class B shares" for its founders (and eventually Eric Schmidt as well), which had all the voting rights, and "Class A shares" for everyone else, which have no such rights. There was a lot of noise about this back then because it left the company more or less in control of its founders and left shareholders with nothing in the way of shareholder rights - short of a huge run up in the stock from around its roughly $82 per share IPO price. We'll come back to the stock split and what it accomplishes below.

Finally, Google's board has declared a "Class C" stock-based dividend for its shareholders, with a dividend record date of March 27, 2014 and a dividend payment date of April 2, 2014.

As Google CEO Larry Page had noted during Google's last earnings call, he would likely not be participating in future calls, and in fact he was not present for yesterday's call. That didn't stop him from issuing a statement, which includes the inevitable Page line, "…I'm also very excited about improving people's lives even more with continued hard work on our user experiences." Page never misses an opportunity to talk up his never ending excitement with improving peoples' lives.

Google's 2013 Q4 Financials

Google reported the following core numbers for its fiscal 2013 Q4:

  • Full year consolidated revenue was $59.86 billion.
  • Consolidated revenues hit $16.86 billion for the quarter, an increase of 17 percent compared to Q4 2012. Consistent with GAAP-based reporting, the revenue number does not take traffic acquisition costs (TAC) into account. For Q4 2013 TAC totaled $3.31 billion - or 24 percent of advertising revenues. As noted earlier this beat consensus analyst estimates by $100 million. Relative to "Google-sized" numbers a $100 million is a tiny drop in the revenue bucket, but a beat is a beat.
  • GAAP-based operating income for Q4 2013 was $3.92 billion, or 23 percent of revenues. In Q4 2012 GAAP operating income was $3.39 billion, or 24 percent of revenues.
  • On a non-GAAP basis operating income for Q4 2013 was $4.84 billion, or 29 percent of revenues. Non-GAAP operating income in Q4 2012 was $4.27 billion, or 30 percent of revenues.
  • GAAP net income, which includes net losses from discontinued operations, was $3.38 billion in Q4 2013, compared to $2.89 billion in Q4 2012.
  • Non-GAAP net income for Q4 2013 was $4.10 billion, compared to $3.57 billion for Q4 2012.
  • GAAP EPS for Q4 2013 was $9.90, compared to $8.62 in Q4 2012.
  • Non-GAAP EPS in the fourth quarter of 2013 was $12.01, compared to $10.65 in the fourth quarter of 2012 - as we noted earlier this was $0.28 below consensus analyst estimates.
  • Stock-based compensation expense in Q4 2013 was $902 million compared to $700 million in Q4 2012.

We won't go through all of the detailed numbers here or what the revenue was for every one of Google's revenue segments. For those interested in the consolidated balance sheets and complete financials, Google has provided them all online.

Several Q4 Financial Highlights

Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of the company's Network members, increased approximately 31 percent over Q4 2012 and increased approximately 13 percent sequentially over Q3 2013.

Average cost-per-click, including clicks related to ads served on Google sites and the sites of Google's Network members, decreased approximately 11 percent over Q4 2012 and decreased approximately 2 percent sequentially over Q3 2013.

Traffic acquisition costs (TAC), those revenues shared with Google's partners, increased slightly to $3.31 billion in Q4 2013, compared to $3.08 billion in Q4 2012. TAC as a percentage of advertising revenues was 24 percent in Q4 2013, compared to 25 percent in Q4 2012.

Motorola Mobile segment revenues and operating losses weighed on the company - clearly Google will be thrilled to be rid of Motorola. Motorola Mobile revenues were $1.24 billion - 7 percent of consolidated revenues in Q4 2013, compared to $1.51 billion, or 11 percent of consolidated revenues in Q4 2012. Motorola Mobile's operating loss in in Q4 2013 was $384 million - an increase over the $152 million reported for Q4 2012.

As of December 31, 2013, cash, cash equivalents, and marketable securities were $58.72 billion. This number is beginning to reach the size that activist investors begin to wonder about - though there isn't anything such investors can do to push Google one way or another. Google acknowledges that cash on hand is becoming critical in terms of what to do with it and is exploring its options.

On a worldwide basis, Google employed 47,756 full-time employees (43,862 in Google and 3,894 in Motorola Mobile) as of December 31, 2013, compared to 46,421 full-time employees (42,162 in Google and 4,259 in Motorola Mobile) as of September 30, 2013.

An Interesting Stock Split

As we noted above, Google has announced finally a stock split. During the earnings call Google explained it as follows: The company will create "Class C" shares with no voting power. Well now, that is unusual! Following the split, which will take place on April 2, 2014, Google's newly-created Class C shares will trade under the company's present symbol (GOOG), while currently-traded Class A shares will trade under the symbol GOOGL.

It is an interesting approach to stock splits, but the actual underlying result - remember, the new shares will have no voting rights, is that it will truly cement Larry Page, Sergey Brin, and Eric Schmidt's control over the company.

It won't matter - investors will jump on like mad. In the end, once the share prices balance out and begin to rise - at least we anticipate a run up - the end result will be to drive Google's market cap significantly higher than it is today. It's a great game for the founders - they keep total control over a company that will continue to grow and begin to approach Apple's market cap.

As we write this morning just ahead of the market opening the stock is at $1,180.02 in pre-=market trading, up $44.63 - 3.93 percent over yesterday's closing price of $1135.39.

Indeed, Google is firing on all cylinders.




Edited by Cassandra Tucker

TechZone360 Senior Editor

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