Google Announces Q1 2006 Results
Well, so much for the naysayers.
This earnings report simply blows away all the forecasts, public, private, and whisper; official and unofficial. Google/GOOG last traded (in after-hours trading) at $445.00 +$30 from today's close. In a word, wow!
The conference call is on now.
-- David M Gordon / The Deipnosophist
===============================
MOUNTAIN VIEW, Calif., Apr 20, 2006 (BUSINESS WIRE) -- Google Inc. (NASDAQ:GOOG) today announced financial results for the quarter ended March 31, 2006.
"Google had an exceptional quarter with strong growth and profitability, from both Google properties and the network," said Eric Schmidt, CEO of Google. "We are driving this growth through investments in our infrastructure and our people, product innovations that attract new users, and relationships with advertisers and partners around the world. The strength of our business model gives us the opportunity to invest in our business, allowing us to maintain and grow our market leadership."
Q1 Financial Summary
Google reported revenues of $2.25 billion for the quarter ended March 31, 2006, an increase of 79% compared to the first quarter of 2005 and an increase of 17% compared to the fourth quarter of 2005. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the first quarter of 2006, TAC totaled $723 million, or 32% 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 are described below and reconciled to the corresponding GAAP measures in the section below titled "About non-GAAP financial measures."
-- GAAP operating income for the first quarter of 2006 was $743 million, or 33% of revenues. This compares to GAAP operating income of $570 million, or 30% of revenues, in the fourth quarter of 2005. Non-GAAP operating income in the first quarter was $887 million, or 39% of revenues. This compares to non-GAAP operating income of $718 million, or 37% of revenues, in the fourth quarter.
-- GAAP net income for the first quarter was $592 million as compared to $372 million in the fourth quarter. Non-GAAP net income was $697 million, compared to $469 million in the fourth quarter.
-- GAAP EPS for the first quarter was $1.95 on 304 million diluted shares outstanding, compared to $1.22 for the fourth quarter, on 304 million diluted shares outstanding. Non-GAAP EPS was $2.29, compared to $1.54 in the fourth quarter.
-- Non-GAAP operating income, non-GAAP net income, and non-GAAP EPS in the first quarter of 2006 are computed net of certain material items: stock-based compensation (SBC) and estimated plaintiffs' attorneys' fees related to the proposed settlement of the Lane's Gift class action lawsuit. In the first quarter, the charge related to stock-based compensation was $115 million as compared to $58 million in the fourth quarter of 2005, which was also excluded from non-GAAP calculations. Plaintiffs' attorneys' fees related to the proposed Lane's Gift class-action lawsuit settlement are estimated to be $30 million. In the fourth quarter of 2005, the contribution to the Google Foundation of $90 million was excluded from the calculation of non-GAAP operating income, non-GAAP net income, and non-GAAP EPS. Tax benefits related to SBC charges, the estimated plaintiffs' attorneys' fees, and the contribution to the Google Foundation have been excluded from non-GAAP calculations. The taxbenefit related to SBC was $27 million in the first quarter and $14 million in the fourth quarter. The tax benefit related to the estimated plaintiffs' attorneys' fees in the first quarter was $12 million. The tax benefit related to the contribution to the Google Foundation in the fourth quarter was $37 million. Reconciliations of non-GAAP measures to GAAP operating income, net income, and EPS are included at the end of this release.
Q1 Financial Highlights
Revenues -- Google reported revenues of $2.25 billion for the quarter ended March 31, 2006, representing a 79% increase over first quarter 2005 revenues of $1.26 billion, and a 17% increase over fourth quarter 2005 revenues of $1.92 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC.
Google Sites Revenues -- Google-owned sites generated revenues of $1.30 billion, or 58% of total revenues. This represents a 97% increase over first quarter 2005 revenues of $657 million and an 18% increase over fourth quarter 2005 revenues of $1.10 billion.
Google Network Revenues -- Google's partner sites generated revenues, through AdSense programs, of $928 million, or 41% of total revenues. This is a 59% increase over network revenues of $584 million generated in the first quarter of 2005 and a 16% increase over fourth quarter 2005 revenues of $799 million.
International Revenues -- Revenues from outside of the United States contributed 42% of total revenues, compared to 38% in the fourth quarter of 2005 and 39% in the first quarter of 2005. Foreign exchange rates had an immaterial impact on sequential international revenue growth. Had foreign exchange rates remained constant from the first quarter of 2005 through the first quarter of 2006, our international revenues would have been $65 million higher.
TAC -- Traffic Acquisition Costs, the portion of revenues shared with Google's partners, increased to $723 million in the first quarter. This compares to TAC of $629 million in the fourth quarter. TAC as a percentage of advertising revenues decreased to 32% in the first quarter from 33% in the fourth quarter.
Other Cost of Revenues -- Other cost of revenues, which is comprised primarily of data center operational expenses, including depreciation expense, as well as credit card processing charges, increased to $181 million, or 8% of revenues, in the first quarter, compared to $148 million, or 8% of revenues, in the fourth quarter. Other cost of revenues also included stock-based compensation of $2 million in both the first quarter of 2006 and the fourth quarter of 2005.
Operating Expenses -- Operating expenses, other than costs of revenues, were $607 million in the first quarter. Operating expenses included $284 million in headcount-related and facilities expenses, $112 million in stock-based compensation, and $50 million in advertising and promotional expenses, of which $25 million was related to distribution deals. In addition, stock-based compensation and estimated plaintiffs' attorneys' fees related to the Lane's Gift class-action lawsuit of $30 million are included in operating expenses, but excluded from non-GAAP calculations.
Stock-Based Compensation -- In accordance with a new accounting rule, FASB Staff Accounting Bulletin No. 107, stock-based compensation is no longer presented as a separate line on our income statement. The stock-based compensation is now presented in the same lines as cash compensation paid to the same individuals. Stock-based compensation recognized in prior periods has been reclassed to conform with the presentation in the current period. In the first quarter, the charge related to stock-based compensation was $115 million as compared to $58 million in the fourth quarter. The increase in stock-based compensation was primarily related to the adoption of FAS 123R related to stock-based options expensing.
For the full year, we expect stock-based compensation charges for grants to employees prior to April 1, 2006 to be $370 million. This does not include expenses to be recognized over the remainder of the year related to employee stock awards that are granted after April 1, 2006 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 approximately 1% to 1.5% per year.
Operating Income -- GAAP operating income in the first quarter was $743 million, or 33% of revenues. This compares to GAAP operating income of $570 million, or 30% of revenues, in the fourth quarter. GAAP operating income includes stock-based compensation, the estimated plaintiffs' attorneys' fees related to the proposed settlement of the Lane's Gift lawsuit of $30 million in the first quarter, and the contribution of $90 million to the Google Foundation in the fourth quarter. Non-GAAP operating income in the first quarter was $887 million, or 39% of revenues. This compares to non-GAAP operating income of $718 million, or 37% of revenues, in the fourth quarter.
Net Income -- GAAP net income for the first quarter was $592 million as compared to $372 million in the fourth quarter. Non-GAAP net income was $697 million, compared to $469 million in the fourth quarter. GAAP EPS for the first quarter was $1.95 on 304 million diluted shares outstanding, compared to $1.22 for the fourth quarter, on 304 million diluted shares outstanding. Non-GAAP EPS was $2.29, compared to $1.54 in the fourth quarter.
The share count of 304 million is as of March 31 and does not include 5.3 million shares issued in the offering completed early in the second quarter. The additional shares will be reflected in the second quarter 2006 share calculations and in subsequent quarters.
Income Taxes -- Our effective tax rate for the first quarter was 27%. We expect our effective tax rate for 2006 to be approximately 30%.
Cash Flow and Capital Expenditures -- Net cash provided by operating activities for the first quarter totaled $825 million as compared to $658 million for the fourth quarter. In the first quarter of 2006, capital expenditures were $345 million. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the first quarter we generated $480 million in free cash flow.
We expect that the growth rate in capital expenditures in 2006 will be substantially greater than the revenue growth rate for the year. We expect the majority of investment to be focused on IT infrastructure including servers, networking equipment, and data centers, as well as real estate and campus facilities.
In accordance with FAS 123R, excess tax benefits related to stock-based compensation, which totaled $77 million in the first quarter, are now classified as a cash flow from financing activities, rather than as a cash flow from operating activities. This requirement will reduce the amounts we record as net cash provided by operating activities and free cash flow, and will increase the amount we record as net cash provided by financing activities. Total cash flow will remain unchanged from what would have been reported under prior accounting rules.
Reconciliations of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, are included at the end of this release.
Cash -- As of March 31, 2006, cash, cash equivalents, and marketable securities were $8.43 billion. This balance does not reflect the additional $2.07 billion raised in the offering that closed in early April.
We also completed the investment of $1 billion in AOL in early April, and the balance of $8.43 billion does not reflect the impact of the cash investment.
On a worldwide basis, Google employed 6,790 full-time employees as of March 31, 2006, up from 5,680 full time employees as of December 31, 2005.
This earnings report simply blows away all the forecasts, public, private, and whisper; official and unofficial. Google/GOOG last traded (in after-hours trading) at $445.00 +$30 from today's close. In a word, wow!
The conference call is on now.
-- David M Gordon / The Deipnosophist
===============================
MOUNTAIN VIEW, Calif., Apr 20, 2006 (BUSINESS WIRE) -- Google Inc. (NASDAQ:GOOG) today announced financial results for the quarter ended March 31, 2006.
"Google had an exceptional quarter with strong growth and profitability, from both Google properties and the network," said Eric Schmidt, CEO of Google. "We are driving this growth through investments in our infrastructure and our people, product innovations that attract new users, and relationships with advertisers and partners around the world. The strength of our business model gives us the opportunity to invest in our business, allowing us to maintain and grow our market leadership."
Q1 Financial Summary
Google reported revenues of $2.25 billion for the quarter ended March 31, 2006, an increase of 79% compared to the first quarter of 2005 and an increase of 17% compared to the fourth quarter of 2005. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the first quarter of 2006, TAC totaled $723 million, or 32% 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 are described below and reconciled to the corresponding GAAP measures in the section below titled "About non-GAAP financial measures."
-- GAAP operating income for the first quarter of 2006 was $743 million, or 33% of revenues. This compares to GAAP operating income of $570 million, or 30% of revenues, in the fourth quarter of 2005. Non-GAAP operating income in the first quarter was $887 million, or 39% of revenues. This compares to non-GAAP operating income of $718 million, or 37% of revenues, in the fourth quarter.
-- GAAP net income for the first quarter was $592 million as compared to $372 million in the fourth quarter. Non-GAAP net income was $697 million, compared to $469 million in the fourth quarter.
-- GAAP EPS for the first quarter was $1.95 on 304 million diluted shares outstanding, compared to $1.22 for the fourth quarter, on 304 million diluted shares outstanding. Non-GAAP EPS was $2.29, compared to $1.54 in the fourth quarter.
-- Non-GAAP operating income, non-GAAP net income, and non-GAAP EPS in the first quarter of 2006 are computed net of certain material items: stock-based compensation (SBC) and estimated plaintiffs' attorneys' fees related to the proposed settlement of the Lane's Gift class action lawsuit. In the first quarter, the charge related to stock-based compensation was $115 million as compared to $58 million in the fourth quarter of 2005, which was also excluded from non-GAAP calculations. Plaintiffs' attorneys' fees related to the proposed Lane's Gift class-action lawsuit settlement are estimated to be $30 million. In the fourth quarter of 2005, the contribution to the Google Foundation of $90 million was excluded from the calculation of non-GAAP operating income, non-GAAP net income, and non-GAAP EPS. Tax benefits related to SBC charges, the estimated plaintiffs' attorneys' fees, and the contribution to the Google Foundation have been excluded from non-GAAP calculations. The taxbenefit related to SBC was $27 million in the first quarter and $14 million in the fourth quarter. The tax benefit related to the estimated plaintiffs' attorneys' fees in the first quarter was $12 million. The tax benefit related to the contribution to the Google Foundation in the fourth quarter was $37 million. Reconciliations of non-GAAP measures to GAAP operating income, net income, and EPS are included at the end of this release.
Q1 Financial Highlights
Revenues -- Google reported revenues of $2.25 billion for the quarter ended March 31, 2006, representing a 79% increase over first quarter 2005 revenues of $1.26 billion, and a 17% increase over fourth quarter 2005 revenues of $1.92 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC.
Google Sites Revenues -- Google-owned sites generated revenues of $1.30 billion, or 58% of total revenues. This represents a 97% increase over first quarter 2005 revenues of $657 million and an 18% increase over fourth quarter 2005 revenues of $1.10 billion.
Google Network Revenues -- Google's partner sites generated revenues, through AdSense programs, of $928 million, or 41% of total revenues. This is a 59% increase over network revenues of $584 million generated in the first quarter of 2005 and a 16% increase over fourth quarter 2005 revenues of $799 million.
International Revenues -- Revenues from outside of the United States contributed 42% of total revenues, compared to 38% in the fourth quarter of 2005 and 39% in the first quarter of 2005. Foreign exchange rates had an immaterial impact on sequential international revenue growth. Had foreign exchange rates remained constant from the first quarter of 2005 through the first quarter of 2006, our international revenues would have been $65 million higher.
TAC -- Traffic Acquisition Costs, the portion of revenues shared with Google's partners, increased to $723 million in the first quarter. This compares to TAC of $629 million in the fourth quarter. TAC as a percentage of advertising revenues decreased to 32% in the first quarter from 33% in the fourth quarter.
Other Cost of Revenues -- Other cost of revenues, which is comprised primarily of data center operational expenses, including depreciation expense, as well as credit card processing charges, increased to $181 million, or 8% of revenues, in the first quarter, compared to $148 million, or 8% of revenues, in the fourth quarter. Other cost of revenues also included stock-based compensation of $2 million in both the first quarter of 2006 and the fourth quarter of 2005.
Operating Expenses -- Operating expenses, other than costs of revenues, were $607 million in the first quarter. Operating expenses included $284 million in headcount-related and facilities expenses, $112 million in stock-based compensation, and $50 million in advertising and promotional expenses, of which $25 million was related to distribution deals. In addition, stock-based compensation and estimated plaintiffs' attorneys' fees related to the Lane's Gift class-action lawsuit of $30 million are included in operating expenses, but excluded from non-GAAP calculations.
Stock-Based Compensation -- In accordance with a new accounting rule, FASB Staff Accounting Bulletin No. 107, stock-based compensation is no longer presented as a separate line on our income statement. The stock-based compensation is now presented in the same lines as cash compensation paid to the same individuals. Stock-based compensation recognized in prior periods has been reclassed to conform with the presentation in the current period. In the first quarter, the charge related to stock-based compensation was $115 million as compared to $58 million in the fourth quarter. The increase in stock-based compensation was primarily related to the adoption of FAS 123R related to stock-based options expensing.
For the full year, we expect stock-based compensation charges for grants to employees prior to April 1, 2006 to be $370 million. This does not include expenses to be recognized over the remainder of the year related to employee stock awards that are granted after April 1, 2006 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 approximately 1% to 1.5% per year.
Operating Income -- GAAP operating income in the first quarter was $743 million, or 33% of revenues. This compares to GAAP operating income of $570 million, or 30% of revenues, in the fourth quarter. GAAP operating income includes stock-based compensation, the estimated plaintiffs' attorneys' fees related to the proposed settlement of the Lane's Gift lawsuit of $30 million in the first quarter, and the contribution of $90 million to the Google Foundation in the fourth quarter. Non-GAAP operating income in the first quarter was $887 million, or 39% of revenues. This compares to non-GAAP operating income of $718 million, or 37% of revenues, in the fourth quarter.
Net Income -- GAAP net income for the first quarter was $592 million as compared to $372 million in the fourth quarter. Non-GAAP net income was $697 million, compared to $469 million in the fourth quarter. GAAP EPS for the first quarter was $1.95 on 304 million diluted shares outstanding, compared to $1.22 for the fourth quarter, on 304 million diluted shares outstanding. Non-GAAP EPS was $2.29, compared to $1.54 in the fourth quarter.
The share count of 304 million is as of March 31 and does not include 5.3 million shares issued in the offering completed early in the second quarter. The additional shares will be reflected in the second quarter 2006 share calculations and in subsequent quarters.
Income Taxes -- Our effective tax rate for the first quarter was 27%. We expect our effective tax rate for 2006 to be approximately 30%.
Cash Flow and Capital Expenditures -- Net cash provided by operating activities for the first quarter totaled $825 million as compared to $658 million for the fourth quarter. In the first quarter of 2006, capital expenditures were $345 million. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the first quarter we generated $480 million in free cash flow.
We expect that the growth rate in capital expenditures in 2006 will be substantially greater than the revenue growth rate for the year. We expect the majority of investment to be focused on IT infrastructure including servers, networking equipment, and data centers, as well as real estate and campus facilities.
In accordance with FAS 123R, excess tax benefits related to stock-based compensation, which totaled $77 million in the first quarter, are now classified as a cash flow from financing activities, rather than as a cash flow from operating activities. This requirement will reduce the amounts we record as net cash provided by operating activities and free cash flow, and will increase the amount we record as net cash provided by financing activities. Total cash flow will remain unchanged from what would have been reported under prior accounting rules.
Reconciliations of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, are included at the end of this release.
Cash -- As of March 31, 2006, cash, cash equivalents, and marketable securities were $8.43 billion. This balance does not reflect the additional $2.07 billion raised in the offering that closed in early April.
We also completed the investment of $1 billion in AOL in early April, and the balance of $8.43 billion does not reflect the impact of the cash investment.
On a worldwide basis, Google employed 6,790 full-time employees as of March 31, 2006, up from 5,680 full time employees as of December 31, 2005.
posted by David M Gordon | 2:03 PM
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