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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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RE: Bullcr@p
By soulcarver on 4/14/2012 5:55:17 PM , Rating: 1
quote:
Percentages are misleading and typically are used by the class war-faring Left to justify tax increases.


While we are at it, let's just toss out mathematics altogether.

quote:
That is literally theft in my opinion.


I always liked this line. If taxes are theft, so are suppressed wages via the appropriation of the surplus value of a sold good or service. Although, under both cases you have signed a "social contract" of sorts by choosing to be a part of this society. Is it theft if you knew the prerequisites of this "social contract" and still use the other benefits afforded by staying here? Really, I am just prodding you to get you to possibly think about this in a new way.

I would like to point out a few things about the statement that lowering taxes will lead to a growing economy. Sweden, one of the most dynamic economies post-recession, has higher individual tax rates than the U.S. I would pose this question to you: what micro and macroeconomic factors have led to their market competitiveness? In respective rates - corporate, individual, payroll - Sweden's tax rates are: 26.3%; 28.89%-59.09%; 31.42% (official source dated 01/11: http://www.investsweden.se/Global/Global/Downloads... (source: http://www.skatteverket.se/privat/skatter/belopppr... In the U.S. these numbers are: 0-35% (federal), 0-12% (states); 0-35% (federal), 0-10.55% (states); 15.3-2.9% (regressive). Sales taxes are also on average higher in Sweden than in the U.S. But, these numbers alone don't tell the whole story. Effective corporate tax rates are the key to this discussion, not individual tax rates.

It is important to note that the sliding scale of corporate taxes in the U.S. is due in part to income, but these rates can be reduced through loop-holes and write-offs. For example according to Bloomberg, Google was able to reduce its effective tax rate to 2.4% using tax loop-holes (source: http://www.bloomberg.com/news/2010-10-21/google-2-... Another source from Forbes also displays how corporations are able to reduce their effective tax rates: http://www.forbes.com/2010/04/01/ge-exxon-walmart-...

While I do agree that the average corporate tax rates could be reduced in the U.S. to bring them in-line with those in Europe, this reduction should be accompanied with the proviso that the so-called "tax loop-holes" be closed. Additionally, corporate tax rates should have little to do with individual tax rates. I believe those in the top income brackets (e.g., owners and large shareholders of corporations) in the U.S. should receive a greater burden of individual taxation, because their individual incomes are derived through a process known as surplus value creation. In other words, these levels of income are derived through businesses from either decreases in labor costs (i.e. through decreases in workers’ wages or through increases in productivity), decreases in material production costs, increases in the price of goods, or increases in sales. As material production costs are set to remain stable or increase in the future, this surplus is most often generated through increased prices, decreased labor costs, or increased sales through the opening of new markets. This can be seen in the U.S. as it becomes progressively more a post-industrial economy. For instance, the U.S. economy has experienced a loss of its relatively high-paying manufacturing job base. Along with that, it has seen its trade imbalance rise. U.S. corporations have become reliant on relatively low-paid service sector jobs domestically, while outsourcing manufacturing to other countries where labor costs are lower (source: http://www.bloomberg.com/news/2011-02-01/u-s-goods...

Instead of the wealthy stuffing their own individual pockets with corporate profits, shouldn't they be spreading that money around in the way of higher paying jobs? In the end, that seems like a better solution that will in turn help the wealthy by creating a more stable consumer class which you can rely on to purchase goods and services in the future. Also, if corporate tax rates go down to increase market competitiveness, shouldn't individual tax rates for those who will reap the rewards go up? At the current dismal state of our infrastructure, along with other government services, it is either this or we privatize. And, if we privatize, you will just see your current taxes replaced with "use taxes," "tolls," and "fees." That actually might not work out too well for those in the classes who consume the most.


RE: Bullcr@p
By Reclaimer77 on 4/14/2012 6:15:04 PM , Rating: 2
The income tax was a "temporary measure" that got made permanent. The Federal Government has NO right to a third of what you make. That is an immoral level of taxation. It's theft.

The income tax is the source root of all evil in this country. Without it we couldn't fund this monstrously sized, inefficient, and Unconstitutional Government. We cannot pretend we have "states rights" when we have a centralized federal income tax.

Also, you Lefties will like this one, we couldn't have the "industrial military complex" without the income tax either.

"1913 wasn't a very good year. 1913 gave us the income tax, the 16th amendment and the IRS."

Ron Paul

:)


RE: Bullcr@p
By ritualm on 4/14/2012 7:32:38 PM , Rating: 1
How do you sustain your always-at-war-with-something economy without income taxes? Print money? Gee, that strategy worked really well for Zimbabwe, doesn't it?


RE: Bullcr@p
By MeesterNid on 4/14/2012 8:09:40 PM , Rating: 3
Here: http://en.wikipedia.org/wiki/United_States_federal...

There, clear as red Crayon, you can see where the majority of the US budget is going so we can put this tired liberal bull $#%^ about war spending being taking us to the poor house to rest.


RE: Bullcr@p
By Reclaimer77 on 4/14/2012 8:36:11 PM , Rating: 3
I love how non-military discretionary spending (bs Congressional pork projects/earmarks) is almost on par with Constitutionally mandated Defense spending. We're so upside down it's not even funny, there can be no doubt.

Didn't Obama run in 2008 on "ending earmarks and pork"? Yeeeah, good job buddy. That's the kind of change we were hoping for.


"Well, we didn't have anyone in line that got shot waiting for our system." -- Nintendo of America Vice President Perrin Kaplan














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