Google Reports Its Earnings For Q3 2014
On Oct. 16, Google Inc. (GOOG) announced financial results for the quarter ended September 30, 2014.
"Google had another strong performance this quarter, with revenue up 20% year on year, at $16.5 billion," said Patrick Pichette, CFO of Google. "We continue to be excited about the growth in our advertising and emerging businesses."
Highlights From The Quarter:
Google Inc. reported consolidated revenues of $16.52 billion for the quarter ended September 30, 2014, an increase of 20% compared to the third quarter of 2013. Google Inc. reports advertising revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the third quarter of 2014, TAC totaled $3.35 billion, or 23% of advertising revenues.
Operating income, operating margin, net income, and earnings per share (EPS) are reported 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 at the end of this release.
GAAP operating income in the third quarter of 2014 was $3.72 billion, or 23% of revenues. This compares to GAAP operating income of $3.76 billion, or 27% of revenues, in the third quarter of 2013. Non-GAAP operating income in the third quarter of 2014 was $5.36 billion, or 32% of revenues. This compares to non-GAAP operating income of $4.62 billion, or 34% of revenues, in the third quarter of 2013.
GAAP net income (including net loss from discontinued operations) in the third quarter of 2014 was $2.81 billion, compared to $2.97 billion in the third quarter of 2013. Non-GAAP net income in the third quarter of 2014 was $4.37 billion, compared to $3.82 billion in the third quarter of 2013.
GAAP EPS (including impact from net loss from discontinued operations) in the third quarter of 2014 was $4.09 on 688 million diluted shares outstanding, compared to $4.38 in the third quarter of 2013 on 678 million diluted shares outstanding. Non-GAAP EPS in the third quarter of 2014 was $6.35 compared to $5.63 in the third quarter of 2013.
Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense. Non-GAAP net income and non-GAAP EPS exclude SBC expense, net of the related tax benefit, as well as net income (loss) from discontinued operations. In the third quarter of 2014, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, and non-GAAP EPS also excluded an impairment charge of $378 million related to a patent licensing royalty asset acquired in connection with the purchase of Motorola.
In the third quarter of 2014, the expense related to SBC from our continuing operations and the related tax benefits were $1,255 million and $258 million compared to $856 million and $200 million in the third quarter of 2013. In addition, net loss from discontinued operations in the third quarter of 2014 was $185 million, compared to $193 million in the third quarter of 2013.
A Good Third Quarter:
Revenues In The Quarter: Google Inc. revenues for the quarter ended September 30, 2014 were $16.52 billion, representing a 20% increase over third quarter of 2013 revenues of $13.75 billion.
Sites Revenues: The sites generated revenues of $11.25 billion, or 68% of total revenues, in the third quarter of 2014. This represents a 20% increase over third quarter of 2013 sites revenues of $9.38 billion.
Network Revenues : The Company's partner sites generated revenues of $3.43 billion, or 21% of total revenues, in the third quarter of 2014. This represents a 9% increase over third quarter of 2013 network revenues of $3.15 billion.
Other Revenues: Other revenues were $1.84 billion, or 11% of total revenues, in the third quarter of 2014. This represents a 50% increase over third quarter of 2013 other revenues of $1.23 billion.
Foreign Exchange Impact on Revenues - Excluding gains related to the company's foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2014 through the third quarter of 2014, the revenues in the third quarter of 2014 would have been $66 million higher. Excluding gains related to the foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2013 through the third quarter of 2014, the revenues in the third quarter of 2014 would have been $106 million lower.
In the third quarter of 2014, the company recognized a benefit of $10 million to revenues through their foreign exchange risk management program, compared to $22 million in the third quarter of 2013.
Paid Clicks - Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of the company's Network members, increased approximately 17% over the third quarter of 2013 and increased approximately 2% over the second quarter of 2014. Sites paid clicks, which include clicks related to ads the company serves on Google owned and operated properties across different geographies and form factors including search, YouTube engagement ads like TrueView, and other owned and operated properties like Maps and Finance, increased approximately 24% over the third quarter of 2013 and increased approximately 4% over the second quarter of 2014. Network paid clicks, which include clicks related to ads served on non-Google properties participating in our AdSense for Search, AdSense for Content, and AdMob businesses, increased approximately 2% over the third quarter of 2013 and decreased approximately 4% over the second quarter of 2014.
Cost-Per-Click - Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 2% over the third quarter of 2013 and remained constant from the second quarter of 2014. Cost-per-click for Google sites decreased approximately 4% over the third quarter of 2013 and decreased approximately 1% over the second quarter of 2014. Network cost-per-click decreased approximately 4% over the third quarter of 2013 and increased approximately 2% over the second quarter of 2014.
TAC - Traffic acquisition costs, the portion of revenues shared with Google's partners, increased to $3.35 billion in the third quarter of 2014, compared to $2.97 billion in the third quarter of 2013. TAC as a percentage of advertising revenues was 23% in the third quarter of 2014, compared to 24% in the third quarter of 2013.
Depreciation and Losses:
Depreciation and loss on disposal of property and equipment and amortization and impairment of intangibles and other assets were $1.55 billion for the third quarter of 2014, of which $1.52 billion was related to Google, compared to $974 million in the third quarter of 2013. Of the $1.52 billion, $109 million was related to amortization of Motorola intangibles, which Google will retain subsequent to the disposal of Motorola Mobile.
Stock-Based Compensation (SBC) - In the third quarter of 2014, the total charge related to SBC was $1,255 million compared to $856 million in the third quarter of 2013. We currently estimate SBC charges for grants made to employees prior to September 30, 2014 to be approximately $4.16 billion for 2014. This estimate does not include expenses to be recognized related to employee stock awards that are granted after September 30, 2014.
Operating Income - GAAP operating income in the third quarter of 2014 was $3.72 billion, or 23% of revenues. This compares to GAAP operating income of $3.76 billion, or 27% of revenues, in the third quarter of 2013. Non-GAAP operating income in the third quarter of 2014 was $5.36 billion, or 32% of revenues. This compares to non-GAAP operating income of $4.62 billion, or 34% of revenues, in the third quarter of 2013.
Interest and Other Income, Net - Interest and other income, net, was $133 million in the third quarter of 2014, compared to $14 million in the third quarter of 2013.
Income Taxes - Our effective tax rate was 22% for the third quarter of 2014, which includes the effect of the impairment charge of $378 million that is not deductible for income tax purposes.
Net Income - GAAP consolidated net income in the third quarter of 2014 was $2.81 billion, compared to $2.97 billion in the third quarter of 2013. Non-GAAP consolidated net income was $4.37 billion in the third quarter of 2014, compared to $3.82 billion in the third quarter of 2013. GAAP EPS in the third quarter of 2014 was $4.09 on 688 million diluted shares outstanding, compared to $4.38 in the third quarter of 2013 on 678 million diluted shares outstanding. Non-GAAP EPS in the third quarter of 2014 was $6.35, compared to $5.63 in the third quarter of 2013.
Cash Flow and Capital Expenditures - Net cash provided by operating activities in the third quarter of 2014 totaled $5.99 billion, compared to $5.08 billion in the third quarter of 2013. In the third quarter of 2014, capital expenditures were $2.42 billion, the majority of which was for data-center construction, production equipment, and real estate purchases.
This article first appeared on GuruFocus.
