Another Strong Quarter for Google

                    
 

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Main July 20, 2006
Another Strong Quarter for Google
Google is showing few signs of a slow-down. The Mountain View, CA-based search giant issued its Q2 06earnings report this afternoon, posting seasonally strong revenues and extremely robust net income growth. Revenues were up 77% year-over-year and 9% sequentially to $2.46 billion for the quarter.
Net income soared 110% year-over-year and 22% sequentially to $721 million. (See table below.)
“It’s another good day, another good quarter for Google,” CEO Eric Schmidt said during Google’s earnings call. Schmidt emphasized the role of partnerships in Google’s success, saying somewhat teasingly that there would be “many, many more coming” in the months ahead. “We’re learning how to build a stronger ecosystem because frankly we can’t do it all by ourselves,” he said.
Capex costs are on the upswing and Google is clear that it plans to spend even more money on new servers, networking equipment, and data centers, as well as real estate and campus facilities, during the rest of the year. “We think we can’t put too much capex into the system,” CFO George Reyes said during the call. “There will definitely be an acceleration” in the months ahead. (What, exactly, Google will be spending its money on is not clear.)
Co-founders Sergey Brin and Larry Page were actually asked a question about net neutrality during the call — Google is a strong proponent of net neutrality rules. Brin said that Google is not afraid of a two-tiered Internet as much as it wants to preserve the current open environment for entrepreneurs.
“People don’t believe us when we say this, but we really care about net neutrality not for Google as a company but for all the smaller companies out there,” he said. Harkening back to Google’s start-up days, Brin said “our ability to have our services compete equally around the Internet was really a fantastic opportunity.”
Page suggested that broadband providers aren’t facing a capacity-crunch in terms of bandwidth usage, one frequent justification cited by phone companies and cable operators when they argue they need to set up rules that charge bandwidth-intensive services more money for throughput to the consumer.
People have been warning that “the Internet is going to melt down and people have been saying that for years and it hasn’t happened,” Page said. “We deliver a lot of video and we don’t see any issues” in terms of bandwidth congestion.”
Google Financial Data
($ in mil.)
2Q05 3Q05 4Q05 1Q06 2Q06
REVENUES  $ 1,384.5  $ 1,578.5  $ 1,919.1  $ 2,253.8  $ 2,455.9
Google Web Sites  $    737.2  $    884.7  $ 1,098.2  $ 1,297.3  $ 1,432.5
Google Network Web Sites  $    630.2  $    675.0  $    798.6  $    928.4  $    996.6
Total Ad Revenues  $ 1,367.4  $ 1,559.7  $ 1,896.8  $ 2,225.7  $ 2,429.0
Licensing &Other Rev.  $       17.1  $       18.8  $       22.3  $       28.1  $       26.0
COSTS AND EXPENSES  $    908.8  $ 1,049.3  $ 1,349.5  $ 1,511.1  $ 1,640.6
Cost of Revenues  $    597.1  $    653.8  $    775.4  $    904.2  $    989.0
Traffic Acquisition Costs  $    494.3  $    529.9  $    628.9  $    722.7  $    785.2
Other Cost of Revenues  $    102.8  $    124.0  $    146.4  $    181.4  $    203.9
Research & Development  $       95.8  $    151.7  $    157.1  $    246.6  $    282.6
Sales and Marketing  $       97.0  $    105.0  $    154.8  $    190.9  $    196.4
General and Administrative  $       71.6  $       92.4  $    114.1  $    169.4  $    172.6
Stock Based Compensation  $       47.3  $       46.3  $       58.2  na   na
INCOME FROM OPERATIONS  $    475.7  $    529.2  $    569.6  $    742.7  $    815.7
NET INCOME  $    342.8  $    381.2  $    372.2  $    592.3  $    721.1
 
Posted by Cynthia Brumfield at05:40 PM |Print |Comments (0)
Some Answers on Skype‘s Growth
eBay issued its Q2 06 earningsreport yesterday and sparked a mini-controversy in the blogosphere regarding the lack of visibility into the online merchant’s prized “communications” arm, Skype. Om Malik, frustrated with the “softball” questions posed by analysts during the earnings call (transcripthere),called Skype’s performance a “riddle wrapped in an enigma.”
Om complains that that all we know about Skype is the service’s quarterly revenues and registered users (which doesn’t translate into active users) and that revenue per registered user rose from $.37 to $.39 sequentially, an increase that Om suggests is tiny. Andy Abramsonechoes Om’s complaint, noting the dearth of telecom analysts on the call.
In actuality, however, eBay released enough data to give comfort that the company will make its 2006 $200 million revenue goal for the VoIP service. And a rise in revenue of only $.02/registered user is actually excellent growth given that the number of registered users is rising simultaneously.
Look at the table below — if Skype keeps growing its revenue per registered user by only $.02/quarter, and the number of registered users keep growing at a rate of 18 million per quarter (below the 19.9 million net new registered users in Q1 06 and the 18.4 million net new registered users in Q2 06), Skype will surely come close to $200 million in revenue for the year. Using these numbers, Skype’s 2006 revenue will be $197 million, close enough to the $200 million goal.
Skype Registered Users, Revenue (mil.)
Total Net Gain Revenue Rev/User
Q104 4.1 na na na
Q204 6.8 2.7 na na
Q304 11.5 4.7 na na
Q404 19.8 8.3 na na
Q105 32.9 13.1 na na
Q205 44.1 11.2 na na
Q305 54.0 9.9 na na
Q405 74.7 20.7 na na
Q106 94.6 19.9  $  35.20  $     0.37
Q206 113.0 18.4  $  44.00  $     0.39
Q306 (e) 131.0 18.0  $  53.71  $    0.41
Q406 (e) 149.0 18.0  $  64.07  $    0.43
Total     $197.00
 
Note that with only a $.02 quarterly increase in the revenue per registered user, Skype’s quarterly revenues could reach $64.07 million in Q4 06, 85% more than the $35.2 million Skype generated in Q1 06.
All this growth, by the way, is coming ahead of any positive impact generated by an alliance of eBay and Yahoo in terms of co-developing their respective web-based voice platforms. (Morgan Stanley analyst Mary Meeker said during the earnings call that “the combination of Skype and Yahoo! potentially adds up to $1 billion in ‘07 revenue and could help assist an accelerating rate of revenue growth for the Company in ‘07 versus what you report in ‘06.” This was the softball question that got Om going).
Posted by Cynthia Brumfield at01:05 PM |Print |Comments (0)
More Daily Show on Net Neutrality
When you’ve got a hit, go with it. That’s obviously the philosophy of “The Daily Show with Jon Stewart,” which last week had an hilarious and incredibly viralbit on Senator Ted Stevens (R-AK) “tubes” rant. Last night, “The Daily Show” followed that up with this equally funny analysis of net neutrality by “resident expert” John Hodgman. (Hodgman also appears in the current slate of Apple commercials as the “PC” representative, and Stewart attempts to lure Hodgman into his commercial riff.) At one point, Hodgman points out that the “slow lane” part of the two-tiered Internet will actually be a series of pneumatic tubes. You must watch (click on picture).
Posted by Cynthia Brumfield at11:05 AM |Print |Comments (0)
Senate Panel Working to Push Bill‘s Passage
It’s not yet the dog days, and Congress hasn’t left for its annual August recess, but Washington seems empty. Traffic has thinned out, the lines at movies are shorter and the usual hustle-bustle is noticeably absent in the stereotypical DC summer heat (which, until a few days ago, was unbearably scorching.)
On the legislative front, then, there’s not much news. But the National Journal’s David Hatch has done a valiant job to drum up something with thispiece on the Senate leadership’s push to get telecom industry lobbyists to work hard to help Senator Ted Stevens (R-AK) get the votes he needs to pass his telecom reform bill this session. Nothing earth-shattering, but nevertheless an interesting glimpse into the day-in and day-out behind-the-scenes business of getting a bill passed.
Commerce Committee staff met last week with a range of industry lobbyists to “harness their lobbying” muscle in securing 60 full Senate votes, the magic number needed to shut-down a bill-killing filibuster. The prospects for the bill’s passage, however, are still very uncertain.
The current bill has to be “slimmed down” in order to win the day on its own, according to some, but in doing so Stevens could alienate some Senators whose favored provisions get cut. If this doesn’t work, Stevens could try to attach a thinned-out version of the bill to another bigger vehicle.
Meanwhile, Senators Olympia Snowe (R-ME) and Byron Dorgan (D-ND) are going to fight to attach their net neutrality amendment to the bill, emboldened by their narrow 11-11 tie vote in committee mark-up. But, as Hatch points out, the votes don’t add up for Snowe and Dorgan either.
With this much uncertainty, look for a lot of last-ditch fireworks in September when Congress reconvenes.
Posted by Cynthia Brumfield at09:18 AM |Print |Comments (0)
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