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2008-07-17 15:01:00
MOUNTAIN VIEW, Calif.–(EMWNews)–Google Inc. (NASDAQ:GOOG) today announced financial results for the
quarter ended June 30, 2008.
“Strong international growth as well as sustained traffic increases on
Google’s web properties propelled us to another strong quarter, despite
a more challenging economic environment,” said Eric Schmidt, CEO of
Google. “As we continue to focus on innovating in our core business of
search, ads and apps, we also look forward to enhancing the experience
of our users and expanding the reach of our advertisers and partners
with new technologies and formats, particularly as our integration of
DoubleClick gains momentum and creates new opportunities in display
advertising and elsewhere.”
Q2 Financial Summary
Google reported revenues of $5.37 billion for the quarter ended June 30,
2008, an increase of 39% compared to the second quarter of 2007 and an
increase of 3% compared to the first quarter of 2008. Google reports its
revenues, consistent with GAAP, on a gross basis without deducting
traffic acquisition costs, or TAC. In the second quarter of 2008, TAC
totaled $1.47 billion, or 28% of advertising revenues.
Google reports operating income, net income, and earnings per share
(EPS) on a GAAP and non-GAAP basis. The non-GAAP measures, as well as
free cash flow, an alternative non-GAAP measure of liquidity, are
described below and are reconciled to the corresponding GAAP measures in
the accompanying financial tables.
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GAAP operating income for the second quarter of 2008 was $1.58
billion, or 29% of revenues. This compares to GAAP operating income of
$1.55 billion, or 30% of revenues, in the first quarter of 2008.
Non-GAAP operating income in the second quarter of 2008 was $1.85
billion, or 34% of revenues. This compares to non-GAAP operating
income of $1.83 billion, or 35% of revenues, in the first quarter of
2008.
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GAAP net income for the second quarter of 2008 was $1.25 billion as
compared to $1.31 billion in the first quarter of 2008. Non-GAAP net
income in the second quarter of 2008 was $1.47 billion, compared to
$1.54 billion in the first quarter of 2008.
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GAAP EPS for the second quarter of 2008 was $3.92 on 318 million
diluted shares outstanding, compared to $4.12 for the first quarter of
2008 on 317 million diluted shares outstanding. Non-GAAP EPS in the
second quarter of 2008 was $4.63, compared to $4.84 in the first
quarter of 2008.
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Non-GAAP operating income, non-GAAP operating margin, non-GAAP net
income, and non-GAAP EPS are computed net of stock-based compensation
(SBC). In the second quarter of 2008, the charge related to SBC was
$273 million as compared to $281 million in the first quarter of 2008.
Tax benefits related to SBC have also been excluded from non-GAAP net
income and non-GAAP EPS. The tax benefit related to SBC was $48
million in the second quarter of 2008 and $51 million in the first
quarter of 2008. Reconciliations of non-GAAP measures to GAAP
operating income, operating margin, net income, and EPS are included
at the end of this release.
Q2 Financial Highlights
Revenues – Google reported revenues of
$5.37 billion for the quarter ended June 30, 2008, representing a 39%
increase over second quarter 2007 revenues of $3.87 billion and a 3%
increase over first quarter 2008 revenues of $5.19 billion. Google
reports its revenues, consistent with GAAP, on a gross basis without
deducting TAC.
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Google Sites Revenues – Google-owned sites generated revenues of $3.53 billion, or 66% of total revenues, in the second quarter of 2008. This represents a 42% increase over second quarter 2007 revenues of $2.49 billion and a 4% increase over first quarter 2008 revenues of $3.40 billion. |
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Google Network Revenues – Google’s partner sites generated revenues, through AdSense programs, of $1.66 billion, or 31% of total revenues, in the second quarter of 2008. This represents a 22% increase over network revenues of $1.35 billion generated in the second quarter of 2007 and a 2% decrease over first quarter 2008 revenues of $1.69 billion. |
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International Revenues – Revenues from outside of the United States totaled $2.80 billion, representing 52% of total revenues in the second quarter of 2008, compared to 48% in the second quarter of 2007 and 51% in the first quarter of 2008. Had foreign exchange rates remained constant from the first quarter of 2008 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $88 million lower. Had foreign exchange rates remained constant from the second quarter of 2007 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $249 million lower. |
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Revenues from the United Kingdom totaled $774 million, representing 14% of revenue in the second quarter of 2008, compared to 15% in the second quarter of 2007 and 15% in the first quarter of 2008. |
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Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 19% over the second quarter of 2007 and decreased approximately 1% over the first quarter of 2008. |
TAC – Traffic Acquisition Costs, the portion of revenues shared
with Google’s partners, decreased to $1.47
billion in the second quarter of 2008. This compares to TAC of $1.49
billion in the first quarter of 2008. TAC as a percentage of advertising
revenues was 28% in the second quarter, compared to 29% in the first
quarter of 2008.
The majority of TAC expense is related to amounts ultimately paid to our
AdSense partners, which totaled $1.32 billion in the second quarter of
2008. TAC is also related to amounts ultimately paid to certain
distribution partners and others who direct traffic to our website,
which totaled $154 million in the second quarter of 2008.
Other Cost of Revenues – Other cost of revenues, which is
comprised primarily of data center operational expenses, amortization of
intangible assets, credit card processing charges as well as content
acquisition costs, increased to $674 million, or 13% of revenues, in the
second quarter of 2008, compared to $624 million, or 12% of revenues, in
the first quarter of 2008.
Operating Expenses – Operating expenses, other than cost of
revenues, were $1.64 billion in the second quarter of 2008, or 31% of
revenues, compared to $1.53 billion in the first quarter of 2008, or 29%
of revenues. The operating expenses in the second quarter of 2008
included $810 million in payroll-related and facilities expenses,
compared to $809 million in the first quarter of 2008.
Stock-Based Compensation (SBC) – In the
second quarter of 2008, the total charge related to SBC was $273 million
as compared to $281 million in the first quarter of 2008.
We currently estimate stock-based compensation charges for grants to
employees prior to July 1, 2008 to be approximately $1.1 billion for
2008. This does not include expenses to be recognized related to
employee stock awards that are granted after July 1, 2008 or
non-employee stock awards that have been or may be granted. We currently
anticipate that dilution related to all equity grants to employees will
be at or below 2% this year.
Operating Income – GAAP operating income in the second quarter of
2008 was $1.58 billion, or 29% of revenues. This compares to GAAP
operating income of $1.55 billion, or 30% of revenues, in the first
quarter of 2008. Non-GAAP operating income in the second quarter of 2008
was $1.85 billion, or 34% of revenues. This compares to non-GAAP
operating income of $1.83 billion, or 35% of revenues, in the first
quarter of 2008.
Interest Income and Other, Net – Interest
income and other was $58 million in the second quarter of 2008, compared
with $167 million in the first quarter of 2008. The decrease was
primarily related to lower yields on our cash balances, as well as lower
average cash balances as a result of cash used in the first quarter to
acquire DoubleClick; lower net realized gains on the sale of our
marketable securities; and an increase in expenses as a result of more
activity under our foreign exchange risk management program.
Net Income – GAAP net income for the
second quarter of 2008 was $1.25 billion as compared to $1.31 billion in
the first quarter of 2008. Non-GAAP net income was $1.47 billion in the
second quarter of 2008, compared to $1.54 billion in the first quarter
of 2008. GAAP EPS for the second quarter of 2008 was $3.92 on 318
million diluted shares outstanding, compared to $4.12 for the first
quarter of 2008, on 317 million diluted shares outstanding. Non-GAAP EPS
for the second quarter of 2008 was $4.63, compared to $4.84 in the first
quarter of 2008.
Income Taxes – Our effective tax rate
was 24% for the second quarter of 2008.
Cash Flow and Capital Expenditures –
Net cash provided by operating activities for the second quarter of 2008
totaled $1.77 billion as compared to $1.78 billion for the first quarter
of 2008. In the second quarter of 2008, capital expenditures were $698
million, the majority of which was related to IT infrastructure
investments, including data centers, servers, and networking equipment.
Free cash flow, an alternative non-GAAP measure of liquidity, is defined
as net cash provided by operating activities less capital expenditures.
In the second quarter of 2008, free cash flow was $1.07 billion.
We expect to continue to make significant capital expenditures.
A reconciliation of free cash flow to net cash provided by operating
activities, the GAAP measure of liquidity, is included at the end of
this release.
Cash – As of June 30, 2008, cash, cash
equivalents, and marketable securities were $12.7 billion.
On a worldwide basis, Google employed 19,604 full-time employees as of
June 30, 2008, up from 19,156 full-time employees as of March 31, 2008.
WEBCAST AND CONFERENCE CALL INFORMATION
A live audio webcast of Google’s second
quarter 2008 earnings release call will be available at http://investor.google.com/webcast.html.
The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press
release, the financial tables, as well as other supplemental information
including the reconciliations of certain non-GAAP measures to their
nearest comparable GAAP measures, are also available at that site. A
replay of the call will be available beginning at 7:30 PM (ET) today
through midnight Thursday, July 24, 2008 by calling 888-203-1112 in the
United States or 719-457-0820 for calls from outside the United States.
The required confirmation code for the replay is 2445002.
FORWARD LOOKING STATEMENTS
This press release contains forward-looking statements that involve
risks and uncertainties. These statements include statements relating to
our success in integrating DoubleClick, our ability to innovate in our
core business, enhance the experience of our users and expand the reach
of our advertisers and partners with new technologies and formats, our
expected stock-based compensation charges, the expected dilution related
to equity grants to our employees, and our plans to make significant
capital expenditures. Actual results may differ materially from the
results predicted and reported results should not be considered as an
indication of future performance. The potential risks and uncertainties
that could cause actual results to differ from the results predicted
include, among others, difficulties in integrating DoubleClick into our
business, unforeseen changes in our hiring patterns, the amount of
stock-based compensation we issue to our service providers, our need to
expend capital to accommodate the growth of the business, as well as
those risks and uncertainties included under the captions “Risk
Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,”
in our Quarterly Report on Form 10-Q for the quarter ended March 31,
2008, which is on file with the SEC and is available on our investor
relations website at investor.google.com
and on the SEC website at www.sec.gov.
Additional information will also be set forth in our report on Form 10-Q
for the quarter ended June 30, 2008, which will be filed with the SEC in
August 2008. All information provided in this release and in the
attachments is as of July 17, 2008, and Google undertakes no duty to
update this information.
ABOUT NON-GAAP FINANCIAL MEASURES
To supplement our consolidated financial statements, which statements
are prepared and presented in accordance with GAAP, we use the following
non-GAAP financial measures: non-GAAP operating income, non-GAAP
operating margin, non-GAAP net income, non-GAAP EPS and free cash flow.
The presentation of this financial information is not intended to be
considered in isolation or as a substitute for, or superior to, the
financial information prepared and presented in accordance with GAAP.
For more information on these non-GAAP financial measures, please see
the tables captioned “Reconciliations of
non-GAAP results of operations measures to the nearest comparable GAAP
measures” and “Reconciliation
from net cash provided by operating activities to free cash flow”
included at the end of this release.
We use these non-GAAP financial measures for financial and operational
decision making and as a means to evaluate period-to-period comparisons.
Our management believes that these non-GAAP financial measures provide
meaningful supplemental information regarding our performance and
liquidity by excluding certain expenses and expenditures that may not be
indicative of our “recurring core business
operating results,” meaning our operating
performance excluding not only non-cash charges, such as stock-based
compensation, but also discrete cash charges that are infrequent in
nature. We believe that both management and investors benefit from
referring to these non-GAAP financial measures in assessing our
performance and when planning, forecasting and analyzing future periods.
These non-GAAP financial measures also facilitate management’s
internal comparisons to our historical performance and liquidity as well
as comparisons to our competitors’ operating
results. We believe these non-GAAP financial measures are useful to
investors both because (1) they allow for greater transparency with
respect to key metrics used by management in its financial and
operational decision making and (2) they are used by our institutional
investors and the analyst community to help them analyze the health of
our business.
Non-GAAP operating income and operating margin. We define
non-GAAP operating income as operating income plus stock-based
compensation. Non-GAAP operating margin is defined as non-GAAP operating
income divided by revenues. Google considers these non-GAAP financial
measures to be useful metrics for management and investors because they
exclude the effect of stock-based compensation so that Google’s
management and investors can compare Google’s
recurring core business operating results over multiple periods. Because
of varying available valuation methodologies, subjective assumptions and
the variety of award types that companies can use under FAS 123R, Google’s
management believes that providing a non-GAAP financial measure that
excludes stock-based compensation allows investors to make meaningful
comparisons between Google’s recurring core
business operating results and those of other companies, as well as
providing Google’s management with an important tool for financial and
operational decision making and for evaluating Google’s
own recurring core business operating results over different periods of
time. There are a number of limitations related to the use of non-GAAP
operating income versus operating income calculated in accordance with
GAAP. First, non-GAAP operating income excludes some costs, namely,
stock-based compensation, that are recurring. Stock-based compensation
has been and will continue to be for the foreseeable future a
significant recurring expense in Google’s
business. Second, stock-based compensation is an important part of our
employees’ compensation and impacts their
performance. Third, the components of the costs that we exclude in our
calculation of non-GAAP operating income may differ from the components
that our peer companies exclude when they report their results of
operations. Management compensates for these limitations by providing
specific information regarding the GAAP amounts excluded from non-GAAP
operating income and evaluating non-GAAP operating income together with
operating income calculated in accordance with GAAP.
Non-GAAP net income and EPS. We define non-GAAP net income as net
income plus stock-based compensation, less the related tax effects. We
define non-GAAP EPS as non-GAAP net income divided by the weighted
average shares, on a fully-diluted basis, outstanding as of June 30,
2008. We consider these non-GAAP financial measures to be a useful
metric for management and investors for the same reasons that Google
uses non-GAAP operating income and non-GAAP operating margin. However,
in order to provide a complete picture of our recurring core business
operating results, we exclude from non-GAAP net income and non-GAAP EPS
the tax effects associated with stock-based compensation. Without
excluding these tax effects, investors would only see the gross effect
that excluding these expenses had on our operating results. The same
limitations described above regarding Google’s
use of non-GAAP operating income and non-GAAP operating margin apply to
our use of non-GAAP net income and non-GAAP EPS. Management compensates
for these limitations by providing specific information regarding the
GAAP amounts excluded from non-GAAP net income and non-GAAP EPS and
evaluating non-GAAP net income and non-GAAP EPS together with net income
and EPS calculated in accordance with GAAP.
Free cash flow. We define free cash flow as net cash provided by
operating activities minus capital expenditures. We consider free cash
flow to be a liquidity measure that provides useful information to
management and investors about the amount of cash generated by the
business that, after the acquisition of property and equipment,
including information technology infrastructure and land and buildings,
can be used for strategic opportunities, including investing in our
business, making strategic acquisitions and strengthening the balance
sheet. Analysis of free cash flow also facilitates management’s
comparisons of our operating results to competitors’
operating results. A limitation of using free cash flow versus the GAAP
measure of net cash provided by operating activities as a means for
evaluating Google is that free cash flow does not represent the total
increase or decrease in the cash balance from operations for the period
since it excludes cash used for capital expenditures during the period.
Our management compensates for this limitation by providing information
about our capital expenditures on the face of the cash flow statement
and under Management’s Discussion and
Analysis of Financial Condition and Results of Operations in our Form
10-Q and Annual Report on Form 10-K. Google has computed free cash flow
using the same consistent method from quarter to quarter and year to
year.
The accompanying tables have more details on the GAAP financial measures
that are most directly comparable to non-GAAP financial measures and the
related reconciliations between these financial measures.
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Google Inc. |
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CONSOLIDATED BALANCE SHEETS |
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(In thousands) |
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December 31, |
June 30, |
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20071 |
2008 |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
6,081,593 |
$ |
7,363,536 |
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Marketable securities |
8,137,020 |
5,370,133 |
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Accounts receivable, net of allowance |
2,162,521 |
2,641,901 |
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Deferred income taxes, net |
68,538 |
94,402 |
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Income taxes receivable |
145,253 |
– |
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Prepaid revenue share, expenses and other assets |
694,213 |
846,865 |
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Total current assets |
17,289,138 |
16,316,837 |
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Prepaid revenue share, expenses and other assets, non-current |
168,530 |
444,844 |
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Deferred income taxes, net, non-current |
33,219 |
220,079 |
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Non-marketable equity securities |
1,059,694 |
1,067,520 |
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Property and equipment, net |
4,039,261 |
5,137,710 |
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Intangible assets, net |
446,596 |
1,138,991 |
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Goodwill |
2,299,368 |
4,853,805 |
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Total assets |
$ |
25,335,806 |
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$ |
29,179,786 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
$ |
282,106 |
$ |
439,281 |
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Accrued compensation and benefits |
588,390 |
493,284 |
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Accrued expenses and other current liabilities |
465,032 |
555,117 |
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Accrued revenue share |
522,001 |
517,287 |
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Deferred revenue |
178,073 |
197,433 |
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Income taxes payable |
– |
143,113 |
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Total current liabilities |
2,035,602 |
2,345,515 |
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Deferred revenue, non-current |
30,249 |
30,933 |
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Deferred income taxes, net, non-current |
– |
22,197 |
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Income taxes payable, non-current |
478,372 |
711,827 |
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Other long-term liabilities |
101,904 |
156,299 |
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Stockholders’ equity: |
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Common stock |
313 |
314 |
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Additional paid-in capital |
13,241,221 |
13,904,271 |
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Accumulated other comprehensive income |
113,373 |
119,181 |
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Retained earnings |
9,334,772 |
11,889,249 |
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Total stockholders’ equity |
22,689,679 |
25,913,015 |
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Total liabilities and stockholders’ equity |
$ |
25,335,806 |
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$ |
29,179,786 |
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1 Derived from audited financial statements. |
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Google Inc. |
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CONSOLIDATED STATEMENTS OF INCOME |
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(In thousands, except per share amounts, unaudited) |
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