• Like
Google Q3 2008 Earnings Slides
Upcoming SlideShare
Loading in...5
×

Google Q3 2008 Earnings Slides

  • 12,929 views
Uploaded on

 

More in: Technology , Business
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
No Downloads

Views

Total Views
12,929
On Slideshare
0
From Embeds
0
Number of Embeds
10

Actions

Shares
Downloads
173
Comments
2
Likes
7

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Q3 2008 Quarterly Earnings Summary
  • 2. Third Quarter 2008 Highlights • Revenue growth of 31% Y/Y and 3% Q/Q – G l Google properties revenue growth of 34% Y/Y and 4% Q/Q ti th f d – Network revenues increased 15% Y/Y and 1% Q/Q – International revenue was $2.8 billion • Operational Highlights – Traffic and revenue solid in Q3 despite difficult economic environment – Key investments in our core search and ads businesses – Increasing prioritization of our newer investments: • Apps, Display, YouTube, and Geo • Maintaining a clear focus on operational efficiency and cost containment, better positioning Google for healthy long-term growth 2
  • 3. Quarterly Revenue 5,541 $5,500 5,367 Q3’08 Y/Y Growth = 31% 5,186 $5,000 Q3’08 Q/Q Growth = 3% Q G % 4,827 $4,500 1,680 4,231 1,655 1,686 $4,000 3,872 1,636 3,664 $3,500 1,455 3,205 $ in millions 1,352 $3,000 1,345 2,690 $2,500 2,456 1,198 2,254 1,037 $2,000 1,919 997 928 3,672 1,578 3,400 3,530 3,122 $1,500 1,257 1,384 799 2,735 675 2,282 2,486 $1,000 630 1,977 584 1,432 1,626 1,297 $500 1,098 885 657 737 $0 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 1' 2' 3' 4' 1' 2' 3' 4' 1' 2' 3' 4' 1' 2' 3' Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Google.com Network Licensing and Other 3
  • 4. U S vs International Revenue U.S. vs. 5,541 $5,500 5,367 5,186 $5,000 $5 000 4,827 4 827 $4,500 4,231 51% $4,000 3,872 52% 3,664 51% $3,500 48% 3,205 48% 48% $ in millions $3,000 47% 2,690 $2,500 2,456 44% 2,254 n $2,000 1,919 44% 42% 1,578 42% $1,500 1,384 52% 1,257 38% 49% 52% 49% 39% 53% 52% 48% $1,000 56% 39% 39% 56% 58% 58% $500 62% 61% 61% 61% $0 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 1' 2' 3' 4' 1' 2' 3' 4' 1' 2' 3' 4' 1' 2' 3' Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q US International 4
  • 5. Traffic Acquisition Costs 1,4861,4741,495 $1,500 1,440 40% 37.2% $ , $1,400 36.1% $1,300 34.0% 1,221 33.2% 35% $1,200 32.5%32.3% 1,125 1,148 $1,100 976 $1,000 31.0% 31 0% 30.7% 0% 31.0% 31 30% 29.9% $900 825 29.1%30.3% 29.2% 28.4% $ in millions $800 785 27.9% 723 25% $700 629 $600 n 530 $500 462 494 20% $400 $300 15% $200 $100 $0 10% 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 1' 2' 3' 4' 1' 2' 3' 4' 1' 2' 3' 4' 1' 2' 3' Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q TAC TAC as % of Advertising Revenues 5
  • 6. Costs and Expenses GAAP $Millions Q3'07 Q2'08 Q3'08 Cost of Revenues $1,663 $2,148 $2,173 Percent of revenues 39% 40% 40% Research & Development $549 $682 $705 Percent of revenues 13% 13% 13% Sales & Marketing $381 $485 $509 Percent of revenues 9% 9% 9% General & Administrative $321 $474 $412 Percent of revenues 8% 9% 7% Total Costs & Expenses $2,914 $3,789 $3,799 Percent of revenues 69% 71% 69% Non-GAAP Non GAAP $Millions Q3'07 Q2'08 Q3'08 Cost of Revenues $1,659 $2,139 $2,162 Percent of revenues 39% 40% 39% Research & Development $418 $495 $536 Percent of revenues 10% 10% 10% Sales & Marketing $351 $442 $445 Percent of revenues 8% 8% 8% General & Administrative $288 $440 $376 Percent of revenues 7% 8% 7% Total Costs & Expenses $2,716 $3,516 $3,519 Percent of revenues 64% 66% 64% Note: Please refer to supporting Table 1 for reconciliations of non-GAAP costs and expenses to GAAP costs and expenses 6
  • 7. Profitability GAAP $Millions Q3'07 Q2'08 Q3'08 Income from Operations $1,318 $ 1,578 $ 1,743 Operating Margin 31% 29% 31% Net Income $1,070 $ 1,247 $ 1,346 EPS (diluted) $3.38 $3.92 $4.24 Non-GAAP $Millions Q3'07 Q2'08 Q3'08 Income from Operations $1,516 $ 1,851 $ 2,023 Operating Margin 36% 34% 37% Net Income $1,237 $ 1,472 $ 1,563 EPS (diluted) $3.91 $ 4.63 $ 4.92 Note: Please refer to supporting Table 2 for reconciliations of non-GAAP results of operations pp g p measures to the nearest comparable GAAP measures 7
  • 8. Free Cash Flow $Millions Q3'07 Q2'08 Q3'08 Net cash provided by operating activities $1,633 $1 633 $1,766 $1 766 $2,185 $2 185 Less purchases of property and equipment q p ($ ) ($553) ($ ) ($697) ($ ) ($452) Free cash flow (Non-GAAP) $1,080 $1,069 $1,733 8
  • 9. Cash Flow Hedging 101: Why does Google need cash flow hedging? • Over 50% of Google’s revenues are billed in currencies other than the U.S. dollar; however, we ultimately measure and report our financial results in U.S. dollars. • As a result, we are subject to the impact of foreign exchange fluctuations on our revenue, earnings, and cash flow. o If the USD strengthens, our revenues invoiced in other currencies become less when translated to USD, and vice versa. • In order to manage this risk, we have implemented a program to hedge against downside risk to our revenues and earnings g g g reported in USD.
  • 10. Cash Flow Hedging 101: How does Google hedge? • We have a rolling program of foreign exchange options to hedge forecasted revenues over the next 18 months. • We hedge revenue, but the amount of options we purchase is computed based on our economic exposure to a currency (revenue less expenses) • In Q3 2008, we hedged revenues denominated in Euro, CAD, and GBP. o Note, however, that our GBP hedges were rolled out late in the quarter - so there was no benefit realized to revenues.
  • 11. Cash Flow Hedging 101: SFAS 133 – How does the accounting work? • SFAS 133 is the standard we use to account for our cash flow hedging program. o Prior to maturity, an option’s unrealized gain or “intrinsic value” – the difference between the strike price of the option and the spot rate of the underlying currency – is recorded as Other Comprehensive Income (OCI) on our balance sheet on a tax effected basis. o At maturity, any unrealized gain is initially recorded to OCI and subsequently recognized as revenue – on a gross basis or before the tax effect - when the corresponding revenue (hedged item) is recognized. o During Q3, the amount reclassified to revenue from OCI was $34M. o The unrealized gain in OCI does not necessarily reflect the eventual benefit to revenue; the ultimate benefit will depend on exchange rates at the maturity of the option contracts. The benefit to revenue will be recognized when the corresponding revenue (hedged item) is recognized within the next 18 months.
  • 12. Cash Flow Hedging 101: SFAS 133 – How does the accounting work? • Because we do not purchase in-the-money options (options with “intrinsic value”) the cost will always equal their “time value ” intrinsic value ), time value. • The cost or “time value” of the option is amortized over its term on a mark to market mark-to-market basis (not on a straight-lined basis) to Interest straight lined Income and Other, net. • As a result, the amount of amortization expense we recognize in any p g y particular quarter is impacted by how much the option moves into or out of the money, as well as the underlying currency’s volatility. • The more an option moves into or out of the money, generally the f lower its “time value,” and the greater the amount of amortization expense we will recognize. This could result in a front end loading of expense. expense
  • 13. Table 1 - Reconciliations of non-GAAP costs and expenses to GAAP costs and expenses As a % of As a % of As a % of $Millions Q3'07 Revenues (1) Q2'08 Revenues (1) Q3'08 Revenues (1) Cost of Revenues (GAAP) $ 1,663 39% $ 2,148 40% $ 2,173 40% Less: Stock-based compensation (4) (9) (11) Cost of Revenues (non-GAAP) $ 1,659 39% $ 2,139 40% $ 2,162 39% Research and development (GAAP) $ 549 13% $ 682 13% $ 705 13% Less: Stock-based compensation Stock based (131) (187) (169) Research and development (non-GAAP) $ 418 10% $ 495 10% $ 536 10% Sales and marketing (GAAP) $ 381 9% $ 485 9% $ 509 9% Less: Stock-based compensation (30) (43) (64) Sales and marketing (non-GAAP) $ 351 8% $ 442 8% $ 445 8% General and administrative (GAAP) $ 321 8% $ 474 9% $ 412 7% Less: Stock-based compensation (33) (34) (36) General and administrative (non-GAAP) $ 288 7% $ 440 8% $ 376 7% Total costs and expenses (GAAP) $ 2,914 69% $ 3,789 71% $ 3,799 69% Less: Stock based compensation Stock-based (198) (273) (280) Total costs and expenses (non-GAAP) $ 2,716 64% $ 3,516 66% $ 3,519 64% 13
  • 14. Table 2 - Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures Operating Operating Operating Margin Margin Margin Figures in millions except per share amounts Q3'07 (1) Q2'08 (1) Q3'08 (1) Income from operations (GAAP) $ 1,318 31% $ 1,578 29% $ 1,743 31% Add: Stock-based compensation Stock based 198 273 280 Income from operations (non-GAAP) $ 1,516 36% $ 1,851 34% $ 2,023 37% Net income (GAAP) $ 1,070 $ 1,247 $ 1,346 Add: Stock-based compensation (net of tax) 167 225 217 Net income (non-GAAP) $ 1,237 $ 1,472 $ 1,563 Net income per share - diluted (GAAP) $ 3.38 $ 3.92 $ 4.24 Net income per share - diluted (non-GAAP) $ 3.91 $ 4.63 $ 4.92 Shares used in per share calculation - diluted 317 318 ( ) (1) Percentages based on GAAP revenues of $4,231 million in Q3 '07, $5,367 million in Q2 '08 and $5,541 million in Q3 '08. g , , , , 14
  • 15. Q3 2008 Quarterly Earnings Summary