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conference date: October 19, 2006
for quarter ending: September 30, 2006 (3nd quarter)
Overview: Revenue growth with very little GAAP earnings growth makes me wonder about the high price to earnings ratio of this stock. Beware of non-GAAP accounting.
Basic data:
Revenues of $2.69 billion were up 10% sequentially and 70% from year-earlier (Q3 2005).
Net income was $733 million, up 1.5% sequentially. Resulting EPS was $2.36 up 1% sequentially. Non-GAAP EPS, however, increased to $2.62 from $2.49.
These GAAP stats include $100 million in stock-based compensation and a $55 million gain from sale of Baidu stock.
Site revenues were $1.63 billion. Network revenues $1.04 billion. International revenues increased to 44% of total revenue. Traffic Acquisition Costs (TAC) increased to $825 million. $780 million of that was ad-sense partners.
However, net cash flow was $1 billion and cash and equivalents ended at $10.4 billion.
Guidance:
Google does not give specific guidance.
Conference Highlights:
Repeated standard Google happy talk. Did not even mention poor GAAP earnings growth.
Full year stock-based compensation expenses are expected to hit $377 million.
$1.5 billion of revenue was from U.S.
Operating expenses are expected to increase. $492 million capital expenditure and anticipates continued rapid increase in Q4.
29% effective tax rate. 9378 employees. Will continue to hire aggressively.
Google news now has archives going back 200 years.
Q&A:
Product launch blizzard confusion? Now need to search for a product, then search within it. Will be making searches horizontal.
Cash for acquisitions instead of undervalued stock (YouTube is being purchased with stock)? YouTube is a one-of transaction. Going forward they will use cash.
Monetization of video? TAC for video? Talking to content providers. Google can provide a monetization engine. Too early to answer TAC for video question.
International markets generate less ad revenue per search? We are doing very well in certain international markets like the United Kingdom. 16% of revenue came from U.K. Great success in other countries in Europe. Emerging market growth rates are high, but on small bases.
Copyright issues with YouTube? Relying on following DMCA.
Cap ex ramp for YouTube capacity? Video is a bandwidth, not a computation intensive, product, so don't think will have a big impact on cap ex.
Ad-words starter edition users often upgrade into regular system.
Market share? Slow down in summer due to high percentage of academics, have recovered.
Is growth curve slowing? Built ladders to reach higher-hanging fruit. Great improvements in ability to get right advertisements to right users. Expects expansion with small businesses and localization.
Distribution deals with Adobe and others? Deals are at beginning stages. They deepen ad revenues and compound quarter by quarter.
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