Google: Profit up 60 Percent, War-Chest at $49.3B USD, Stock Split 2-to-1
April 13, 2012 7:01 PM
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850,000 Android devices are activated every day, Google's search business continues to rise in profits
Google Inc. (
) isn't number one in the tech industry in profit (
that would be Apple
, Inc. (
) -- $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
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 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:
: 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)
[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
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 [
], 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,
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 [
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
-- 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 [
]. And its political action committee (PAC) chipped in another $1M USD, largely party-agnostic [
]. Google gave $814,000 USD to U.S. President Barack Obama in his last campaign [
] and $165,000 so far this campaign [
]. 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
[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
top-three Android phonemaker Motorola Mobility
. Approved in the U.S. [
] and European Union [
], 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
in its services, however, the world's most populous nation is still at odds with Google for complaining about being hacked.
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
spoken out against
the company's apparent promotion of the practice. China's top state-run newspaper responded with a
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".
This article is over a month old, voting and posting comments is disabled
RE: google needs to spend money!
4/15/2012 9:09:46 PM
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!
4/16/2012 10:40:47 PM
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.
"I mean, if you wanna break down someone's door, why don't you start with AT&T, for God sakes? They make your amazing phone unusable as a phone!" -- Jon Stewart on Apple and the iPhone
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