Google has released their Q4 2005 earnings as covered in this news release.
From the news release:
"We are very pleased with our results for the fourth quarter as we achieved excellent performance across our businesses," said Eric Schmidt, CEO of Google. "We generated significant revenue growth in our core search and advertising business, driven by continued strength in traffic and monetization. We will continue to invest significantly as we develop innovative new products and as we extend our core technologies to new user access points and to different channels."
Google reported fourth-quarter sales, excluding traffic acquisition costs (TAC), the revenue that Google shares with advertising partners, of $1.29 billion. That was in line with expectations. But John Aiken, an analyst with Majestic Research, an independent research firm, said earlier Tuesday that Google would probably need to report sales of $1.37 billion to impress Wall Street. And more alarming to investors, the company posted earnings per share, excluding the effect of stock options costs and research and development-related charges, of $1.54 a share, well below analysts' consensus estimates of $1.76 a share.
+ GAAP net income for the fourth quarter was $372 million as compared to $381 million in the third quarter. Non-GAAP net income was $469 million, compared to $437 million in the third quarter.
+ GAAP EPS for the fourth quarter was $1.22 on 304 million diluted shares outstanding, compared to $1.32 for the third quarter, on 290 million diluted shares outstanding. Non-GAAP EPS was $1.54, compared to $1.51 in the third quarter.
+ Google reported revenues of $1.919 billion for the quarter ended December 31, 2005, an increase of 86% compared to the fourth quarter of 2004 and an increase of 22% compared to the third quarter of 2005. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC. In the fourth quarter, TAC totaled $629 million, or 33% percent of advertising revenues.
+ Google Sites Revenues - Google-owned sites generated revenues of $1.098 billion, or 57% of total revenues. This represents a 24% increase over the third quarter revenues of $885 million.
+ Google Network Revenues - Google's partner sites generated revenues, through AdSense programs, of $799 million, or 42% of total revenues. This is an 18% increase over network revenues of $675 million generated in the third quarter.
+ International Revenues - Revenues from outside of the United States contributed 38% of total revenues, compared to 39% in the third quarter of 2005 and 35% in the fourth quarter of 2004. International revenues reflected the unfavorable impact caused by the appreciation of the U.S. dollar and stronger seasonal trends in the U.S. relative to the international business.
+ TAC - Traffic Acquisition Costs, the portion of revenues shared with Google's partners, increased to $629 million in the fourth quarter. This compares to TAC of $530 million in the third quarter. TAC as a percentage of advertising revenues decreased to 33.2% in the fourth quarter from 34.0% in the third quarter, reflecting primarily the continued shift in our revenue mix from Google network revenue to Google-owned site revenue.
+ As of December 31, 2005, Google had cash, cash equivalents and marketable securities of $8.0 billion.
+ Google employed 5,680 full time employees as of December 31, 2005, up from 4,989 as of September 30, 2005 and 3,021 as of December 31, 2004.
During a conference call with analysts, Google chief financial officer George Reyes said that earnings took a hit largely due to a larger than expected tax rate that Google had to pay...Reyes added that Google's sales were hit by unfavorable currency comparisons. Revenue would have been better if not for a strengthening dollar, he said...[Eric] Schmidt also stressed that Google would continue to spend heavily on research and development in order to remain an innovative company. "We invest with a long-term view of the business. We are going to make some really big bets," he said.
From Dow Jones:
"To me, it was a very solid quarter," agreed Google bull Safa Rashtchy, an analyst at Piper Jaffray. "I'm not disappointed at all. We knew the point would come when operations would match expectations."
The company is focused on the continued growth opportunities in Internet advertising and in international sales, said Chief Executive Eric Schmidt. "Most important, we believe the rate of innovation will increase in 2006 as we continue to bring the most talented minds into Google and our unique innovative model delivers amazing new products," he told analysts in the conference call...Almost all of Google's revenue comes from advertisements that appear on search result pages and on partner Web sites. Advertising on Google-owned sites generated 57 percent of total revenue, while partner sites generated 42 percent.
Substantially higher expenses also weighed on Google's earnings. For instance, the company spent $155 million on sales and marketing during the fourth quarter, more than doubling the $76 million spent last year. The company also hired nearly 700 more workers during the fourth quarter, expanding its payroll to 5,680 employees.
"I was somewhat astonished'' at Google's stock decline, Chief Financial Officer George Reyes said in an interview. "We're here to build a business for the long term. We'll take this quarter in stride."
Postscript: From Business 2.0 and Om Malik
"Entrepreneurs and venture capitalists in Northern California and elsewhere are shrugging off the fourth-quarter earnings miss that drove shares down 12 percent in after-hours trading on Tuesday. For a company that has grown at breakneck speed, single-handedly revived the online advertising industry, and touched off a new wave of entrepreneurial activity in the Valley, it's just growing pains, they say.
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