Analyst Conference Summary

Google Inc.

conference date: April 19, 2007 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2007 (1st quarter)

Overview: Continued strong growth, but earnings per share down slightly sequentially.

Basic data:

Revenues were $3.66 billion, up 14% sequentially from $3.21 billion and up 63% from Q1 2006.

GAAP net income was $1.0 billion, down sequentially from $1.03 billion. But up 69% from $592 million in Q1 2006. Non-GAAP net income was stated as $1.6 billion.

GAAP EPS was $3.18, down 3.3% sequentially. Non-GAAP EPS was put at $3.68.

Cash and equivalents ended at $11.9 billion.



Conference Highlights:

Ecstatic about Q1. Reminded that Google is about to enter its traditionally slow growth summer period. Using revenues from core business to expand into related businesses.

Non-GAAP figures given exclude stock-based compensation expense of $184 million and $27 million in related tax effects.

Google-owned sites had 62% of total revenue or $2.28 billion.

Google network revenue (AdSense) was $1.35 billion. International gains of AdSense were strong.

International revenues were $1.71 billion. Was 47% of total revenue. Seeing significant growth there.

38% non-GAAP operating margin.

Paid clicks increased 52% from year-earlier and 13% sequentially.

TAC (traffic acquisition cost) was $1.13 billion, or 31% of ad revenues. Of that $1.05 was paid to AdSense partners. May see pressure on TAC rates going forward.

Other cost of revenue was $345 million. Operating expenses were $972 million.

The effective tax rate was 26%.

Net cash from operating activities was $1.22 billion. Capital expenditures were $597 million, primarily for server and networking infrastructure. Free cash flow was $623 million.

Recapped various product introductions, new partnerships, and acquisitions.

Believes that search ad business had lots of room for growth.


Stock-based compensation tax credit? Was a very modest sequential change.

Display advertising attractiveness? After targetting ads for search, felt they could target display ads better.

Algorithm color? Building on quality component of ads from start. In mid-February did quality-based bidding changes. Added to front end of AdWords an ability for clients to monitor quality.

Revenue per employee? Don't approach it that way. Focus on end-user happiness. Need engineers to build new great product.

Toolbar actvity? Toolbar users search more than non-users. Can't quantify number of users who don't use but could.

Migration of advertising to online? Just seeing the power of the platform. Ability to measure efficiently is very attractive.

Cookie data and 3rd party ad serving? Excited about imroving practices to increase privacy while improving targeting.

TAC color? Doing more deals which require a disproportionate amount of TAC, which is generally going up in cost.

Q1 v. Q4? Q4 had more marketing cost.

Click growth rate decline? Q1 is typically seasonally slower for monetization. Clicks are extremely healthy.

Checkout? Peaked in Christmas season. Not going at a strong rate at this time. Will probably contribute about 1% of revenues going forward.

UK color? Economy is very strong there, as is our sales team. Did deal with BBC.

Offline ad partnerships? These are not remnant deals. ClearChannel inventory is highly available.

Quality means seeing less ads but more dollars for them through higher-click-through rates.

Non-search percentage of use? With unified logon personalization improves. Don't have stats on percentage of non-search.

Content filtering plans? Building Cleaner Content tool which allows publishers to quickly get Google to remove inappropriate content. There will be a mechanism to prove ownership of intellectual property.

Disparity in monetization UK v. rest of international? Believes international percentage of revenue will continue to grow. Gap largely reflects ad budgets in different countries.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. Before making or terminating an investment you should always verify any factual basis of your decision .

Copyright 2007 William P. Meyers