Google Misses On Earnings Bottom Line -- But The Stock Goes Up Anyway
APGoogle CEO Larry Page.
Google announced its Q4 earnings results:
Revenue: $US16.86 billion up 17%.
Earnings per share: $US12.01.
Net income: $US3.38 billion.
That's a beat on the topline but a miss on the bottom line. Again, Google got bigger than analysts believed it would, but this time it didn't deliver the profits they were hoping before. The stock is up nearly 4% in after-hours trading.
Sales at the Motorola mobile phones unit actually declined (see below), so the fact that Google beat on revenue despite that indicates just how robust its core search and advertising business is. That lack of sales at Motorola doesn't say much about the Moto X, Google's flagship, self-made Android phone, launched to much fanfare in 2013. And that may go some way to explain why Google is suddenly keen to offload the Motorola unit. It agreed to sell Motorola to Lenovo yesterday for $US2.91 billion — taking a huge loss on the investment, which was priced at $US12.5 billion in 2012.
Click here for Google's full results.
Paid Clicks: up 31% over 2012 and up 13% Q3.
Cost-Per-Click: decreased 11% over 2012 and decreased 2% over Q3.
Click prices are yet another indicator that Google is bringing in more advertisers who are paying slightly less for each ad, but the total number of dollars gathered has gone up.
Here is how the revenues look in a chart:
Highlights from the conference call with Wall Street investors:
(Comment: This call is very dry. There is a lot of discussion on the nitty gritty pieces of the business, but no specific numbers, facts or metrics you can hang your hat on. Back when Page did the calls, it felt like there were more big-vision statements to get excited about. CFO Patrick Pichette and Nikesh Arora, chief business officer, seem determined to say nothing specific, but to take a lot of time to say it. But that's just me!)
CFO Patrick Pichette and Nikesh Arora, chief business officer, are leading the call. CEO Larry Page said he would stop doing calls last quarter, as his voice was very weak. Founder Sergey Brin isn't on the call either.
Patrick Pichette begins with the numbers.
The Motorola-Lenovo sale will be good news for the Android ecosystem.
… operating loss for Motorola business was $US384 million.
Nikesh Arora svp/chief business officer is talking …
Marketing: Google ads were three of the top 10 most-viewed on YouTube last year.
Highlights from the Q&A section:
Arora says,"Our goal is to help them scale and bringing the resources of Google to … reach broader audiences and scale internationally."
Arora: Nielsen measurement deal helps with credibility because an independent third party is reassuring advertisers that the metrics and audience are real. Otherwise its just media-owner Google endorsing its own media, which it is also measuring.
App installs and the future of cookies:
Arora: we have always had solutions for app install advertisers. … you'll hear more from us in the future … (The context here is that Facebook has a roaring business in app install ads but the perception of Google's version is more muted.)
Arora: our teams are working on this, there are some early concepts but it's too early to talk about what those precise solutions are going to be.
Google Wallet:
Arora: We're constantly trying to reduce the friction from doing a search to actually buying something. … Larry oversees the team …
PLAs:
Arora: we are seeing adoption, we've added 8 more countries this Q … adding shoppers and retailers …
Motorola:
Arora: We believe this is a great transaction where everybody wins. … M has really strengthened our Android ecosystem. … a real win-win for everybody…. all in all quite a great story.
Maps and Waze:
Arora: We are clearly experimenting with new ad formats on local maps. … location is a great filter.
Brand advertising on YouTube:
Nielsen OCR allows us to get "table stakes" for basic entry level metrics for the space … promises more specific metrics for brand image advertising in the future, as opposed to direct-response ROI.
You have more than $US15 billion in cash. What are you going to do with it? (It's actually nearly $US19 billion.)
Pichette: the cash position is a strategic asset, both offensive and defensive .. it is reviewed regulary … so we have a real strategy … but we have nothing else to announce. … we do take this issue seriously. … at the board level.
What are you doing with Android fragmentation (this is a reference to the fact that few Android phone users have the current version of Android, and many users are using one of a bunch of previous versions — which makes developing apps for Android tricky.)
Arora: We have always had clear objectives to support all our partners … there is a number of steps taken to make sure this is in fact fragmentation (?) we've done a lot of progress on this in the last 18 months and there's a lot more to come.
Here's what analysts were expecting:
Revenues: $US16.75 billion
Earnings per share: $US12.26
The big news prior to the call was Google's decision to sell its Motorola mobile phones unit to Lenovo for $US2.9 billion. Google only acquired the company in 2012, when it paid $US12.5 billion. It was, according to some, "one of the worst investments in Google's history."
One question might be: Will there be a big writedown on the income statement because of the sale? No!, is the answer, based on the income statement. Investors will be looking for guidance on that in the months to come.
Regardless, GOOG has had a great run in the last year, going from $US755 to over $US1,100 per share.
Disclosure: The author sold his Google stock a few days before the call.
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