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Quick Recap of Google’s result

Published on February 1, 2007

Quick Recap of Google’s result

February 1, 2007

While browsing web for quick analysis of Google’s result, I found this interesting blog. I am posting key notes from blogger “Yaser Anwar” who wrote in his blog at: http://equityinvestmentideas.blogspot.com/index.html

  • Google reported net revenue growth of 20% in the Q to $2.23B (EPS $3.29, excluding $133 million tax benefits EPS is $3.18), higher than Street estimates in spite of approximately 200 basis points increase in traffic acquisition costs as a percent of revenue.
  • Google’s incremental cash flow margin in the quarter was 60.8%, down 100 basis points from Q3. Lower gross margin also impacted operating margin, which came in at 47.6% vs 49.9% reported in Q3. R&D expense was slightly higher than Street estimate and was offset by lower sales & marketing spend. On a pro-forma basis, operating margin was 53.6% in Q4 vs. 55.3% last Q.
  • However, Investors should expect margins to continue trending down as Google invests aggressively in new growth opportunities (international, video, media partnerships and mobile etc).
  • GOOG’s 19%+ QoQ growth reflected a ~1700 bps spread over Yahoo!’s normalized 3% QoQ search growth rate compared to the average 1,400 bps spread historically seen in the 4Q as Google continues to drive superior monetization of its commanding search market share both domestically and internationally.
  • Google-owned sites revenue was $1.98 billion, 80% YoY, representing 62% of gross revenues. Revenues from Google’s network of affiliate sites was $1.2 billion, 50% YoY representing 37% of gross revenues.
  • International revenue was $1.41 billion, +93% YoY growth, which represented 44% of total revenues. US sales were also strong coming in at $1.8 billion, growing at a clip of 51% YoY. Management pointed to contributions from Australia, Latin America, Ireland, and Brazil. Furthermore, management explicitly indicated several times on the call that growth in the US remains solid.
  • A year ago, consensus expectations for 07 revenues and EPS were $9.0B & $11.63. Since then they have risen to $10.8B & $13.92, while Google’s stock has risen only 15%.

Check out Yaser’s blog for more information at: http://equityinvestmentideas.blogspot.com/index.html

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