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850,000 Android devices are activated every day, Google's search business continues to rise in profits

Google Inc. (GOOG) isn't number one in the tech industry in profit (that would be Apple, Inc. (AAPL) -- $13.06B USD in Q1 2012) or in market cap (again, Apple -- $578B USD).  But Google is still a giant in its own right, ruler of all things search, and owner of the most used smartphone operating system in the world, Android.

I. Core Earnings

Google just reported its fiscal Q1 results and everything is looking fine and dandy.

Profit rose to $2.89B USD (non-GAAP; GAAP: $2.65B USD) vs. $1.80B USD (non-GAAP) a year ago.  The earnings were more than 4 percent better than the analyst consensus.  Net revenue rose to $10.65B USD, up from $8.58B USD in Q1 2011.  That's a rise of 24 percent.

Search on Google
Search continues to drive Google's profits. [Image Source: Google Images/Unknown]

A major portion of Google's revenue goes to so-called "traffic acquisition costs", which include deals with top browser makers, etc., which funnel search traffic to Google's homepage, but also cost it money.  These costs rose from $2.04B USD to $2.51B USD on a year-to-year basis (up 26 percent).  However, paid clicks rose 39 percent, indicating Google is getting more bang for its buck and not simply buying more hits.

The company declined to break down revenue by a per-product basis, other than for YouTube and Search.

II. Vital Signs

Quick vital signs on core Google offerings:
  • Chrome: 200 million users (a figure that appears not to include Android Chrome)
  • YouTube: $5B per year USD in display ad revenue.
  • Android: 850,000 activations a day (310m devices a year); Google Play (revised app/video rental store) launched; new Chrome browser launched
  • Google+: 170 million users (active?) (point of reference Facebook: 845m active users)
Google earnings
[Image Source: Jason Mick/DailyTech]

The software firm ended the quarter with just over 33,000 employees worldwide.  The company has $49.3B USD of cash on hand (about half of Apple's war-chest).

Google stock, currently hovering around $625 USD, will be offered a split of 2-to-1.  However, the new shares will be non-voting shares, something that may turn off large investors.  Thus liquidity is improved, but control is reduced -- which may give institutional investors mixed reactions.  Indeed, Google's stock was down 3.75 percent today, despite the strong performance.

III. Dodging Those Pesky Taxes

The company also announced that for the first quarter of 2012, it is now paying an effective tax rate of 18 percent [source], above the average (~12 percent) for Fortune500 companies, but about half the supposed tax rate set forth by basic corporate tax law (35 percent of earnings), the rate small-to-midsize business are typically forced to pay. 

Google in recent public comments, defended sourcing its regional head-quarters in low-tax regions like Ireland, Luxembourg, and the Caribbean as a way of masking its corporate earnings.

The company esentially said that it had to dodge taxes as a responsibility to shareholders, commenting:

We have an obligation to our shareholders to set up a tax-efficient structure, and our present structure is compliant with the tax rules in all the countries where we operate.

To its credit, Google was one of the only companies to effective own up to this practice in a public comment.

Google paid an incredible effective tax rate of 2.4 percent in 2010 [source].  

The U.S. has a complex tax code, where top corporations and wealthy individuals typically pay a lower effective income tax than small-to-midsize businesses or the middle-class.  This system is made confusing by the fact that the wealthy interests appear to be taxed more on paper -- among the highest taxes in the world in fact.  The "discounts" are only added at tax time.

Google spent $9M USD in lobbying in 2011 [source].  And its political action committee (PAC) chipped in another $1M USD, largely party-agnostic [source].  Google gave $814,000 USD to U.S. President Barack Obama in his last campaign [source] and $165,000 so far this campaign [source].  Obama was the first presidential candidate since records became available to be heavily funded by Google.

Today U.S. politicians are much like NASCAR drivers in that they spend much time thanking their sponsors.  Those thanks come in the way of tax loopholes, tax holidays, judicial favoritism, and other perks.  A recent University of Kansas School of Business study [PDF] found that $1 given to a federal politician was worth $243 USD of tax breaks, if you contributed over $1M USD.

The cost of these bipartisan concessions come in the form of America's $15T USD national debt and tax barriers that discourage smaller individuals and competitors from rising in affluence, thanks to higher taxation.

IV. The Unknowns

What was not discussed during the earnings call?  Notably, app statistics or Android revenue/profit.  Speculation is high about exactly how profitable or non-profitable Android is.  For now all Google would say was to call the platform a "gamble" and suggest that it is thus far paying off in activations (market share).

Also not discussed was the pending acquisition of top-three Android phonemaker Motorola Mobility.  Approved in the U.S. [press release] and European Union [press release], and approved by voting shareholders, the acquisition is almost ready for primetime.  However, its completion has been stalled by China.  China (also not mentioned in the earnings call) has come to an "understanding" with Google regarding mandatory censorship in its services, however, the world's most populous nation is still at odds with Google for complaining about being hacked.

Google on Motorola
Google's acquisition of Motorola is stalled pending Chinese approval.
[Image Source: TechnoBuffalo]

Many in the government of China have advocated a model in which foreign businesses must increasingly surrender their intellectual property in order to sell to Chinese users (note that  manufacturers not selling to the Chinese market would be exempt -- for now).  While legislation to that end stalled on the grounds of outrage from the U.S., China appears to be still encouraging a black market of IP theft of American firms.

Google, a prominent victim of such attacks and code theft, has spoken out against the company's apparent promotion of the practice.  China's top state-run newspaper responded with a threatening commentary in a top interview, suggesting that Google should either put up with the abuse or get out.

China may be using the Motorola deal as a bargaining chip to try to convince Google that the correct answer is "put up with the abuse".

Source: YouTube



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google needs to spend money!
By Hilariousity on 4/13/2012 7:26:34 PM , Rating: 2
Google needs to spend money! All of this saving is going to be bad for the economy if some of the largest companies like Apple and Google don't start spending




RE: google needs to spend money!
By mikeyD95125 on 4/13/2012 8:04:55 PM , Rating: 2
That's pure Hilariousity!!!


RE: google needs to spend money!
By Shig on 4/13/2012 8:06:01 PM , Rating: 2
http://www.npr.org/blogs/money/2012/04/13/15044125...

Take a look at how little corporations actually pay in taxes.


RE: google needs to spend money!
By ebakke on 4/14/2012 1:00:43 AM , Rating: 1
I don't need your link to know that corporations pay $0 in taxes. Individuals pay them. "Corporate taxes" are a misnomer. They can't, and never could, pay taxes. They're just groups of people that employ other people, and sell to different people.


RE: google needs to spend money!
By Solandri on 4/14/2012 1:44:04 PM , Rating: 4
Not sure why you were rated down. If you consider a country's economic productivity as a whole, it's all generated by individuals - some working on their own, some banding together to work as a corporation. Taxes take a part of that productivity and divert it to the government. Whether those taxes are extracted from the economy via income taxes, sales taxes, property taxes, or corporate taxes is irrelevant. In the end, it's a portion of each individual's productivity which is diverted to the government.

Anyone who believes taxing corporations somehow eases the tax burden on individuals is deluding himself. All it does is take part of what individuals would have paid in taxes, and shifts it into lower wages they receive and higher prices for goods they buy. The end result is the same. If the government takes a net 25% of the country's GDP, then the net sum of the average individual's taxes, higher prices, and lower wages will be 25% of their productivity. There is simply no getting around that because the only source of productivity is individuals.

If you take the approach of using high taxes or low taxes to discourage or encourage certain types of behavior, then yes it can make sense to have all these different types of taxes (including corporate taxes).* But claiming corporations aren't paying enough tax is equivalent to saying the prices of goods you buy are too low. If you feel those goods need to be taxed higher, then sure raise the corporate or sales tax. But don't for a moment believe that you as an individual won't be paying for a higher corporate tax rate.

* In particular, the tax laws need to be changed to put small businesses on an even playing field with large businesses. Small businesses benefit from ability to quickly react to changing markets. Large businesses benefit from economies of scale. A different effective tax rate between the two skews the market to unreasonably favor large businesses.


RE: google needs to spend money!
By darckhart on 4/15/2012 11:56:52 AM , Rating: 2
quote:
But claiming corporations aren't paying enough tax is equivalent to saying the prices of goods you buy are too low. If you feel those goods need to be taxed higher, then sure raise the corporate or sales tax. But don't for a moment believe that you as an individual won't be paying for a higher corporate tax rate.


you'd be right if it were a zero sum equation. it's not. prices are set arbitrarily according to the market conditions. a worker's productivity is not equal to x. it's x + profit. large corporations surely can be taxed more. the fact that this flows down to the consumer as increased cost of goods is purely due to the corporation ensuring profits, one method of which is by the tax loopholes which currently excludes small businesses and middle class individuals.


RE: google needs to spend money!
By Ringold on 4/15/2012 9:09:46 PM , Rating: 2
I'm not sure what you're saying. You say he's not right because it's not "zero sum," whatever that means in this context. Then you point out, in a roundabout way, that as margins are squeezed by higher taxes production is halted or reduced, thus reducing the quantity supplied to the market, thus boosting equilibrium prices, thus being one avenue of the tax being transferred to individuals (the other being reduced employment, etc). Basically, you say he's wrong in his (correct) analysis that tax hikes are transferred down in price hikes (because, as you point out, companies exist to generate profit), and then you basically say the same thing he did. Then add something about small business and the middle class.

Unless you're upset companies reduce output and the market price (which isn't at all "arbitrary", any economist can tell you a good chunk of their degree was spent learning the math involved) goes up in order to maintain a profit. Saying that companies and individuals can't earn a buck?


RE: google needs to spend money!
By darckhart on 4/16/2012 10:40:47 PM , Rating: 2
zero sum in this case means you are assuming there is a constant amount of money in the system and therefore if one takes away, some other must gain.

it's not roundabout. the reality of life is the cost passes through to the customer to ensure a profit margin. the margin is arbitrary.

"cant earn a buck"
please look at the oil company. explain how it posts multi billion dollar profits per quarter. then explain supply, demand, and corporate taxes.


RE: google needs to spend money!
By Solandri on 4/16/2012 3:27:12 PM , Rating: 2
quote:
you'd be right if it were a zero sum equation. it's not. prices are set arbitrarily according to the market conditions.

Most taxes are percentage-based, so price is irrelevant.

For taxes which are fixed-price, all that ends up happening is that tax revenue goes up or down as a percentage of GDP depending on how high or low the price goes.

quote:
a worker's productivity is not equal to x. it's x + profit.

Productivity has nothing to do with profits. Productivity is how much value a worker adds to the economy in a year. Profit is how much the economy grows in a year.

I don't know how to explain this any simpler. Money is a representation of productivity. When you pretend you have more money than you actually have productivity, Greece happens and (if the country has its own currency) its currency falls in value relative to other countries' currency until the country's monetary value matches its productivity. (In Greece's case, it was on the Euro, so the other Euro countries are basically paying the huge credit card bill Greece racked up.)

If you decide 25% of GDP should go to taxes, then 25% of money/productivity will go to the government that year. Doesn't matter whether you extract it as corporate taxes, income taxes, sales taxes, VATs, property taxes.

If your productivity would have earned you $100,000 in salary in a year and there were no corporate taxes, you will only be able to buy $75,000 worth of goods and services. The other $25,000 you would pay to the government as personal/sales taxes.

If you eliminated all taxes except corporate taxes and held prices constant, then the company would have to reduce your salary to $75,000 to maintain its finances. So you'd have $75,000 to spend buying goods and services. The other $25,000 would be paid by your company to the government as corporate taxes.

If you eliminated all taxes except corporate taxes and held salaries constant, you'll still have $100,000 take-home pay, but the company would be forced to raise its prices to maintain its finances. Price of goods and services will go up. What cost $75,000 in the previous case will cost you $100,000 now.

If you eliminated all taxes except corporate taxes, held prices constant, and held salaries constant, then the company goes bankrupt and you break the economy.

There is no free lunch.


RE: google needs to spend money!
By darckhart on 4/16/2012 10:35:00 PM , Rating: 2
quote:
Productivity is how much value a worker adds to the economy in a year.

please put a money value on the productivity and then tell me how it's not an arbitrary algorithm.

quote:
When you pretend you have more money than you actually have productivity, Greece happens and (if the country has its own currency) its currency falls in value relative to other countries' currency until the country's monetary value matches its productivity. (In Greece's case, it was on the Euro, so the other Euro countries are basically paying the huge credit card bill Greece racked up.)

slighty disagree. let's simplify with a cc example. you pay 0% interest if you make the full payment on time. you pay 29.99% if not. oh dear where did that 29.99% number come from?
quote:
If you decide 25% of GDP should go to taxes, then 25% of money/productivity will go to the government that year. Doesn't matter whether you extract it as corporate taxes, income taxes, sales taxes, VATs, property taxes.

i agree.

quote:
If your productivity would have earned you $100,000 in salary in a year and there were no corporate taxes, you will only be able to buy $75,000 worth of goods and services. The other $25,000 you would pay to the government as personal/sales taxes.

i agree.
quote:
If you eliminated all taxes except corporate taxes and held prices constant, then the company would have to reduce your salary to $75,000 to maintain its finances. So you'd have $75,000 to spend buying goods and services. The other $25,000 would be paid by your company to the government as corporate taxes.

disagree. please define "maintain its finances" and let me know if "ensured profit margin" is baked into that.

same for the rest


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