MOUNTAIN VIEW, Calif. – October 13, 2011 - Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended September 30, 2011.
Larry Page, CEO of Google said.
"We had a great quarter. Revenue was up 33% year on year and our quarterly revenue was just short of $10 billion. Google+ is now open to everyone and we just passed the 40 million user mark. People are flocking into Google+ at an incredible rate and we are just getting started!"
Present at the Q3 2011 Earnings Call was CEO Larry Page, Senior Vice-President and Chief Financial Officer Patrick Pichette, Senior Vice-President and Chief Business Officer Nikesh Arora and Senior Vice-President of Ads Susan Wojcicki.
Q3 Financial Summary
Google reported revenues of $9.72 billion for the quarter ended September 30, 2011, an increase of 33% compared to the third quarter of 2010. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the third quarter of 2011, TAC totaled $2.21 billion, or 24% of advertising revenues.
Google reports operating income, operating margin, net income, and earnings per share (EPS) 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 2011 was $3.06 billion, or 31% of revenues. This compares to GAAP operating income of $2.55 billion, or 35% of revenues, in the third quarter of 2010. Non-GAAP operating income in the third quarter of 2011 was $3.63 billion, or 37% of revenues. This compares to non-GAAP operating income of $2.93 billion, or 40% of revenues, in the third quarter of 2010.
- GAAP net income in the third quarter of 2011 was $2.73 billion, compared to $2.17 billion in the third quarter of 2010. Non-GAAP net income in the third quarter of 2011 was $3.18 billion, compared to $2.46 billion in the third quarter of 2010.
- GAAP EPS in the third quarter of 2011 was $8.33 on 327 million diluted shares outstanding, compared to $6.72 in the third quarter of 2010 on 322 million diluted shares outstanding. Non-GAAP EPS in the third quarter of 2011 was $9.72, compared to $7.64 in the third quarter of 2010.
- Non-GAAP operating income and non-GAAP operating margin exclude the expenses related to stock-based compensation (SBC). Non-GAAP net income and non-GAAP EPS exclude the expenses related to SBC and the related tax benefits. In the third quarter of 2011, the charge related to SBC was $571 million, compared to $380 million in the third quarter of 2010. The tax benefit related to SBC was $116 million in the third quarter of 2011 and $85 million in the third quarter of 2010. Reconciliations of non-GAAP measures to GAAP operating income, operating margin, net income, and EPS are included at the end of this release.
Q3 Financial Highlights
Revenues – Google reported revenues of $9.72 billion in the third quarter of 2011, representing a 33% increase over third quarter 2010 revenues of $7.29 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting TAC.
Google Sites Revenues - Google-owned sites generated revenues of $6.74 billion, or 69% of total revenues, in the third quarter of 2011. This represents a 39% increase over third quarter 2010 revenues of $4.83 billion.
Google Network Revenues - Google’s partner sites generated revenues, through AdSense programs, of $2.60 billion, or 27% of total revenues, in the third quarter of 2011. This represents a 18% increase from third quarter 2010 network revenues of $2.20 billion.
International Revenues - Revenues from outside of the United States totaled $5.3 billion, representing 55% of total revenues in the third quarter of 2011, compared to 54% in the second quarter of 2011 and 52% in the third quarter of 2010. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the second quarter of 2011 through the third quarter of 2011, our revenues in the third quarter of 2011 would have been $53 million lower. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2010 through the third quarter of 2011, our revenues in the third quarter of 2011 would have been $483 million lower.
- Revenues from the United Kingdom totaled $1.05 billion, representing 11% of revenues in the third quarter of 2011, compared to 12% in the third quarter of 2010.
- In the third quarter of 2011, we recognized a benefit of $1 million to revenues through our foreign exchange risk management program, compared to $89 million in the third quarter of 2010.
A reconciliation of our non-GAAP international revenues excluding the impact of foreign exchange and hedging to GAAP international revenues is included at the end of this release.
Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 28% over the third quarter of 2010 and increased approximately 13% over the second quarter of 2011.
Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 5% over the third quarter of 2010 and decreased approximately 5% over the second quarter of 2011.
TAC - Traffic acquisition costs, the portion of revenues shared with Google’s partners, increased to $2.21 billion in the third quarter of 2011, compared to TAC of $1.81 billion in the third quarter of 2010. TAC as a percentage of advertising revenues was 24% in the third quarter of 2011, compared to 26% in the third quarter of 2010.
The majority of TAC is related to amounts ultimately paid to our AdSense partners, which totaled $1.83 billion in the third quarter of 2011. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $383 million in the third quarter of 2011.
Other Cost of Revenues - Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs as well as credit card processing charges, increased to $1.17 billion, or 12% of revenues, in the third quarter of 2011, compared to $747 million, or 10% of revenues, in the third quarter of 2010.
Operating Expenses - Operating expenses, other than cost of revenues, were $3.28 billion in the third quarter of 2011, or 34% of revenues, compared to $2.19 billion in the third quarter of 2010, or 30% of revenues.
Stock-Based Compensation (SBC) – In the third quarter of 2011, the total charge related to SBC was $571 million, compared to $380 million in the third quarter of 2010.
We currently estimate SBC charges for grants to employees prior to October 1, 2011 to be approximately $2.0 billion for 2011. This estimate does not include expenses to be recognized related to employee stock awards that are granted after September 30, 2011 or non-employee stock awards that have been or may be granted.
Operating Income - GAAP operating income in the third quarter of 2011 was $3.06 billion, or 31% of revenues. This compares to GAAP operating income of $2.55 billion, or 35% of revenues, in the third quarter of 2010. Non-GAAP operating income in the third quarter of 2011 was $3.63 billion, or 37% of revenues. This compares to non-GAAP operating income of $2.93 billion, or 40% of revenues, in the third quarter of 2010.
Interest and Other Income, Net – Interest and other income, net increased to $302 million in the third quarter of 2011, compared to $167 million in the third quarter of 2010.
Income Taxes – Our effective tax rate was 19% for the third quarter of 2011.
Net Income – GAAP net income in the third quarter of 2011 was $2.73 billion, compared to $2.17 billion in the third quarter of 2010. Non-GAAP net income was $3.18 billion in the third quarter of 2011, compared to $2.46 billion in the third quarter of 2010. GAAP EPS in the third quarter of 2011 was $8.33 on 327 million diluted shares outstanding, compared to $6.72 in the third quarter of 2010 on 322 million diluted shares outstanding. Non-GAAP EPS in the third quarter of 2011 was $9.72, compared to $7.64 in the third quarter of 2010.
Cash Flow and Capital Expenditures – Net cash provided by operating activities in the third quarter of 2011 totaled $3.95 billion, compared to $2.89 billion in the third quarter of 2010. In the third quarter of 2011, capital expenditures were $680 million, the majority of which was related to IT infrastructure investments, including data centers, servers, and networking equipment. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the third quarter of 2011, free cash flow was $3.27 billion.
We expect to continue to make significant capital expenditures.
A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release.
Cash – As of September 30, 2011, cash, cash equivalents, and short-term marketable securities were $42.6 billion.
Headcount – On a worldwide basis, Google employed 31,353 full-time employees as of September 30, 2011, up from 28,768 full-time employees as of June 30, 2011.
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COMMENTARY: Google CEO Larry Page was beaming with pride with impressive increases in gross revenues of $9.72 billion in the third quarter of 2011, representing a 33% increase over third quarter 2010 revenues of $7.29 billion, and net income in the third quarter of 2011 was $2.73 billion, compared to $2.17 billion in the third quarter of 2010. Non-GAAP net income in the third quarter of 2011 was $3.18 billion, compared to $2.46 billion in the third quarter of 2010. Revenue growth is no more dependent from international sources.
Top Ten Google Salaries
South African job listing site JobVine compiled the following chart of the top ten salaries at Google, compiled from Glassdoor.
The top pay is for contract positions leading software development. It's not uncommon to see contractors earn more salary than full-time employees at big tech companies, because they're often not able to get stock options and perks.
For jobs within the company, it looks like directors of product management are the highest paid, which is fitting with Google's new emphasis under Larry Page on product over engineering.
Below is the list of Google Directors and executives as of April 13 2011:
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You might also find it very interesting to know the compensation paid to the members of Google's Board of Directors:
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For the fiscal year ended December 31, 2010, Larry Page, Sergey Brin and Eric Schmidt drew the following compensation:
- An annual salary of $1.00.
- The three drew bonuses of $1.785 million for the year ending December 31, 2010.
- Eric Schmidt also drew stock options totalling $311.439 million, which is quite a payday.
- On April 20, 2011, Google announced that it had rewarded Eric Schmidt for shifting from the CEO's office to exec chairman by bumping up his salary from $1 to $1.25m. The company's latest filing at the SEC shows that Schmidt will also qualify for a bonus of 400 per cent of that salary.
In November 15, 2010, Google, significantly increased employee payouts effective January 1, 2011, according to a public 8-K securities and exchange (SEC) filing published late last week by the company.
- The Google Board of Directors approved the hefty increase in base salaries with added stock options for top-level executives at the company.
- Four executives, including Patrick Pichette (Senior VP, CFO), Nikesh Arora (President, Sales & Business Development), Alan Eustace (Senior VP, Engineering, and Jonathan Rosenberg (Senior VP, Product Management), will all receive a significant 30-percent increase in their respective base salaries, bringing their new annual base salaries to $650,000.
- Both Patrick Pichette and Nikesh Arora will each receive an additional $20-million in options, Alan Eustace will receive $10-million, and Jonathan Rosenberg will receive $5-million.
- The three Google co-founders: Eric Schmidt, Sergey Brin, and Larry Page will each continue to receive their traditional $1 annual salary and were not awarded additional stock options.
If you've been reading that executive pay for America's leading corporations has been increasing dramatically during the Great Recession, the above is absolute proof.
Courtesy of Google Earnings Call Press Released of October 13, 2011 and an article dated October 12, 2011 appearing in Business Insider
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