Google Second Quarter Financial Results for 2008- Shares Down by 8%!

Jul 18, 2008 | 1,830 views | by Navneet Kaushal
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The much anticipated Google second quarter financial results for 2008 have been announced.

According to Google, "Strong international growth as well as sustained traffic increases on Google's web properties propelled us to another strong quarter, despite a more challenging economic environment," said Eric Schmidt, CEO of Google. "As we continue to focus on innovating in our core business of search, ads and apps, we also look forward to enhancing the experience of our users and expanding the reach of our advertisers and partners with new technologies and formats, particularly as our integration of DoubleClick gains momentum and creates new opportunities in display advertising and elsewhere."

However, CNNMoney.com reports that, Google's earnings for the second quarter were not quite upto, what the investors were expecting. Thus raising concerns that the gradually declining U.S economy might be showing effects on the Search Engine giant as well. In the year 2007, for the second quarter, Google had a net income of $925 million, but for this year Google's net income has rose to $1.25 billion. These figures mean that, last year Google was poised at $2.93 per share, that has steadily rose to $3.92 per share for the year 2008. By the end of the stock market's trading day, Google shares had dropped by 8% or $42.44, ending the day at $533.44, down $2.16.

goog share 1 Google Second Quarter Financial Results for 2008  Shares Down by 8%!

Here is the Press Release for the Second Quarter 2008 Results for 2008:

GOOGLE ANNOUNCES SECOND QUARTER 2008 RESULTS

MOUNTAIN VIEW, Calif. – July 17, 2008 – Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter ended June 30, 2008.

Q2 Financial Summary:

Google reported revenues of $5.37 billion for the quarter ended June 30, 2008, an increase of 39% compared to the second quarter of 2007 and an increase of 3% compared to the first quarter of 2008. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the second quarter of 2008, TAC totaled $1.47 billion, or 28% 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, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures in the accompanying financial tables.

GAAP operating income for the second quarter of 2008 was $1.58 billion, or 29% of revenues. This compares to GAAP operating income of $1.55 billion, or 30% of revenues, in the first quarter of 2008. Non-GAAP operating income in the second quarter of 2008 was $1.85 billion, or 34% of revenues. This compares to non-GAAP operating income of $1.83 billion, or 35% of revenues, in the first quarter of 2008.

  • GAAP net income for the second quarter of 2008 was $1.25 billion as compared to $1.31 billion in the first quarter of 2008. Non-GAAP net income in the second quarter of 2008 was $1.47 billion, compared to $1.54 billion in the first quarter of 2008.
  • GAAP EPS for the second quarter of 2008 was $3.92 on 318 million diluted shares outstanding, compared to $4.12 for the first quarter of 2008 on 317 million diluted shares outstanding. Non-GAAP EPS in the second quarter of 2008 was $4.63, compared to $4.84 in the first quarter of 2008.
  • Non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, and non-GAAP EPS are computed net of stock-based compensation (SBC). In the second quarter of 2008, the charge related to SBC was $273 million as compared to $281 million in the first quarter of 2008. Tax benefits related to SBC have also been excluded from non-GAAP net income and non-GAAP EPS. The tax benefit related to SBC was $48 million in the second quarter of 2008 and $51 million in the first quarter of 2008. Reconciliations of non-GAAP measures to GAAP operating income, operating margin, net income, and EPS are included at the end of this release.

Q2 Financial Highlights:

Revenues – Google reported revenues of $5.37 billion for the quarter ended June 30, 2008, representing a 39% increase over second quarter 2007 revenues of $3.87 billion and a 3% increase over first quarter 2008 revenues of $5.19 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting TAC.

Google Sites Revenues – Google-owned sites generated revenues of $3.53 billion, or 66% of total revenues, in the second quarter of 2008. This represents a 42% increase over second quarter 2007 revenues of $2.49 billion and a 4% increase over first quarter 2008 revenues of $3.40 billion.

Google Network Revenues – Google's partner sites generated revenues, through AdSense programs, of $1.66 billion, or 31% of total revenues, in the second quarter of 2008. This represents a 22% increase over network revenues of $1.35 billion generated in the second quarter of 2007 and a 2% decrease over first quarter 2008 revenues of $1.69 billion.

International Revenues – Revenues from outside the United States totaled $2.80 billion, representing 52% of total revenues in the second quarter of 2008, compared to 48% in the second quarter of 2007 and 51% in the first quarter of 2008. Had foreign exchange rates remained constant from the first quarter of 2008 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $88 million lower. Had foreign exchange rates remained constant from the second quarter of 2007 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $249 million lower.

Revenues from the United Kingdom totaled $774 million, representing 14% of revenue in the second quarter of 2008, compared to 15% in the second quarter of 2007 and 15% in the first quarter of 2008.

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 19% over the second quarter of 2007 and decreased approximately 1% over the first quarter of 2008.

TAC – Traffic Acquisition Costs, the portion of revenues shared with Google's partners, decreased to $1.47 billion in the second quarter of 2008. This compares to TAC of $1.49 billion in the first quarter of 2008. TAC as a percentage of advertising revenues was 28% in the second quarter, compared to 29% in the first quarter of 2008.

The majority of TAC expense is related to amounts ultimately paid to our AdSense partners, which totaled $1.32 billion in the second quarter of 2008. TAC is also related to amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $154 million in the second quarter of 2008.

Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, credit card processing charges as well as content acquisition costs, increased to $674 million, or 13% of revenues, in the second quarter of 2008, compared to $624 million, or 12% of revenues, in the first quarter of 2008.

Operating Expenses – Operating expenses, other than cost of revenues, were $1.64 billion in the second quarter of 2008, or 31% of revenues, compared to $1.53 billion in the first quarter of 2008, or 29% of revenues. The operating expenses in the second quarter of 2008 included $810 million in payroll-related and facilities expenses, compared to $809 million in the first quarter of 2008.

Stock-Based Compensation (SBC) – In the second quarter of 2008, the total charge related to SBC was $273 million as compared to $281 million in the first quarter of 2008

We currently estimate stock-based compensation charges for grants to employees prior to July 1, 2008 to be approximately $1.1 billion for 2008. This does not include expenses to be recognized related to employee stock awards that are granted after July 1, 2008 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 at or below 2% this year.

Operating Income – GAAP operating income in the second quarter of 2008 was $1.58 billion, or 29% of revenues. This compares to GAAP operating income of $1.55 billion, or 30% of revenues, in the first quarter of 2008. Non-GAAP operating income in the second quarter of 2008 was $1.85 billion, or 34% of revenues. This compares to non-GAAP operating income of $1.83 billion, or 35% of revenues, in the first quarter of 2008.

Interest Income and Other, Net – Interest income and other was $58 million in the second quarter of 2008, compared with $167 million in the first quarter of 2008. The decrease was primarily related to lower yields on our cash balances, as well as lower average cash balances as a result of cash used in the first quarter to acquire DoubleClick; lower net realized gains on the sale of our marketable securities; and an increase in expense as a result of more activity under our foreign exchange risk management program.

Net Income – GAAP net income for the second quarter of 2008 was $1.25 billion as compared to $1.31 billion in the first quarter of 2008. Non-GAAP net income was $1.47 billion in the second quarter of 2008, compared to $1.54 billion in the first quarter of 2008. GAAP EPS for the second quarter of 2008 was $3.92 on 318 million diluted shares outstanding, compared to $4.12 for the first quarter of 2008, on 317 million diluted shares outstanding. Non-GAAP EPS for the second quarter of 2008 was $4.63, compared to $4.84 in the first quarter of 2008.

Income Taxes – Our effective tax rate was 24% for the second quarter of 2008.

Cash Flow and Capital Expenditures – Net cash provided by operating activities for the second quarter of 2008 totaled $1.77 billion as compared to $1.78 billion for the first quarter of 2008. In the second quarter of 2008, capital expenditures were $698 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 second quarter of 2008, free cash flow was $1.07 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 June 30, 2008, cash, cash equivalents, and marketable securities were $12.7 billion.

On a worldwide basis, Google employed 19,604 full-time employees as of June 30, 2008, up from 19,156 full-time employees as of March 31, 2008.

WEBCAST AND CONFERENCE CALL INFORMATION:

A live audio webcast of Google's second quarter 2008 earnings release call will be available at http://investor.google.com/webcast.html. The call begins today at 1:30 PM (PT)/4:30 PM (ET). This press release, the financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available at that site. A replay of the call will be available, beginning at 7:30 PM (ET) today through midnight Thursday, July 24, 2008 by calling 888-203-1112 in the United States or 719-457-0820 for calls from outside the United States. The required confirmation code for the replay is 2445002.

4.thumbnail Google Second Quarter Financial Results for 2008  Shares Down by 8%!

Navneet Kaushal

Navneet Kaushal is the founder and CEO of PageTraffic, an SEO Agency in India with offices in Chicago, Mumbai and London. A leading search strategist, Navneet helps clients maintain an edge in search engines and the online media. Navneet's expertise has established PageTraffic as one of the most awarded and successful search marketing agencies.
4.thumbnail Google Second Quarter Financial Results for 2008  Shares Down by 8%!
4.thumbnail Google Second Quarter Financial Results for 2008  Shares Down by 8%!