Google Inc., Q1 2010 Earnings Call, Apr 15, 2010 - NasdaqGS:GOOGL

NasdaqGS:GOOGL

Maria Shim, representing Investor Relations, made the following statements during the earnings call:

1. Introduction:

   • "Good afternoon, everyone, and welcome to today's First Quarter 2010 Earnings Conference Call."
   • "With us are Patrick Pichette, Chief Financial Officer; Jeff Huber, Senior Vice President of Engineering; Susan Wojcicki, Vice President of Product Management; and Nikesh Arora, President, Global Sales Operations and Business Development."

2. Website Information:

   • "We are now distributing our earnings release exclusively through our newly revamped Investor Relations website located at investor.google.com."
   • "So going forward please refer to our IR website for our earnings releases, as well as supplementary slides that accompany the call."

3. Webcast and Replay Availability:

   • "This call today is also being webcast from investor.google.com."
   • "A replay of this call will also be available on our website in a few hours."

4. Safe Harbor Statement:

   • "Some of the statements we make today may be considered forward-looking, including statements regarding investments in our innovation agenda, expected performance of our business and our expected level of capital expenditures."
   • "These statements involve risks and uncertainties that could cause actual results to differ materially and reflect our opinions only as of the date of this presentation."
   • "We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events."
   • "Please refer to our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2009, as well as our earnings press release for a more detailed description of the risk factors that may affect our results."

5. Financial Measures:

   • "Certain financial measures we use on this call, such as operating profit and operating margin, are expressed on a non-GAAP basis and have been adjusted to exclude charges related to stock-based compensation."
   • "We have also adjusted our net cash provided by operating activities to remove capital expenditures, which we refer to as free cash flow."
   • "Our GAAP results and GAAP to non-GAAP reconciliation can be found in our earnings press release."

6. Transition to Patrick Pichette:

   • "Now with that, I will now turn the call over to Patrick."

7. End of Presentation:

   • "Great. Can we take the next question please?"
   • "Can we take our next question please?"
   • "Great. Can we take the next question please?"
   • "Can we take our next question please?"
   • "Great. I think we're done taking questions."
   • "I'm going to turn it over to Patrick for some closing thoughts."

8. Closing:

   • "Great. I think we're done taking questions."
   • "I'm going to turn it over to Patrick for some closing thoughts."
   • "Connie?" (At the end of the call, turning it over to the operator to conclude the meeting.)

Maria Shim's role during the call was primarily to introduce the speakers, provide procedural information about the call, and facilitate the question-and-answer session.

Patrick Pichette, the former Chief Financial Officer and Senior Vice President of Google, provided extensive commentary during the Q1 2010 earnings call. Here is a detailed summary of his statements:

Opening Remarks

• New Format for the Call:

  • Two calls previously held will be merged into a single call.
  • Eric will not be joining the call going forward.
  • The call will be led by Patrick, with Jonathan Rosenberg and Nikesh Arora joining for Q&A.

• Overview of Google's Situation:

  • The digital economy continues to grow rapidly.
  • Google's users and advertisers benefit from this trend.
  • Q1 results reflect these trends and fuel optimism.
  • Google is investing heavily in people, products, and acquisitions.

• Investments:

  • People: Hiring has increased, focusing on engineering and sales.
  • Products: Emphasis on improving user experience and ads.
  • Acquisitions: Active M&A pipeline to build on focus areas and bring new talent and technology to Google.

• Business Performance:

  • Healthy momentum from Q4 and general economic recovery continued.
  • Large advertisers returned in force.
  • Offerings are broader in scope, integrating campaigns across search, display, and mobile.
  • Conversations with advertisers are becoming more strategic.

• Product Area Performance:

  • Search: Strong performance across all geographies and major verticals.
  • Display: Strong growth, with momentum across all regions, products, and channels.
  • Mobile: Growing nicely, benefiting from smartphone growth and internet usage.
  • Enterprise: Successful integrations and deployments.

Financial Results

• Gross revenue grew 23% YoY to $6.8 billion.
• Google website revenue grew 20% YoY to $4.4 billion.
• AdSense revenue grew 24% YoY to $2 billion.
• Other revenue grew 68% YoY to $300 million.
• Global aggregate Paid Click growth remained healthy.
• Aggregate Cost-Per-Click growth was up 7% YoY but down 4% QoQ.
• Revenue from the U.S. grew 22% YoY to $3.2 billion.
• International revenue accounted for 53% of total revenue, up 24% YoY.
• UK revenue grew 15% YoY to $842 million.
• Traffic acquisition costs were $1.7 billion, or 26% of total advertising revenue.
• Non-GAAP operating profit increased to $2.8 billion, with a non-GAAP operating margin of 41%.
• Headcount increased by approximately 800 to around 20,600 full-time employees.
• Effective tax rate was 22% for Q1.

Cash Management

• Operating cash flow was $2.6 billion.
• Capital expenditures for the quarter were $239 million.
• Free cash flow finished the quarter at $2.3 billion.

Closing Remarks

• Patrick thanked everyone for joining the call and expressed gratitude to all Googlers for their hard work.

• He looked forward to the next earnings call at the end of Q2.

Susan D. Wojcicki, the Former Chief Executive Officer of YouTube and Vice President of Product Management at the time of the call, discussed several aspects related to Google’s advertising business, innovations, and performance. Here’s a detailed summary of her comments:

General Overview

• Investment Areas: Susan highlighted the key areas of investment in Google's advertising business, focusing on Search, Display, and Mobile.
• Goal: The goal is to make ads better and more useful as Google expands to new inventory beyond search.

Search Innovations

• Universal Search: Started about a year ago, Google questioned why search ads were limited to text links. Universal Search was introduced to incorporate videos, books, and social network updates into search results. Ads can now include images, product information, and interactive elements.
• Examples:
  • HP All-in-One Printer ads now include pictures, prices, and purchase options.
  • Movie ads, like for "The Losers," can include options to watch trailers directly in the ad.
  • Sitelinks enable advertisers to drive traffic to specific parts of their site (e.g., Toys "R" Us links to product specials).
• Performance: Click-through rates on Sitelinks are up 30% to 40%.

Data and Insight

• Search Funnel: Launched a new reporting feature called the Search Funnel, which tracks user interactions with ads throughout the buying process. Helps advertisers optimize their campaigns.

Display Business

• Strong Momentum: Display business is experiencing strong growth.
• Investment Areas:
  • Platform (DoubleClick suite of products)
  • Ad Exchange
  • Content Network (including YouTube)

Platform Enhancements

• Integration: Launched the largest Google and DoubleClick integration to date, rewriting DoubleClick for Publishers on Google technologies.
• Benefits: Provides publishers with better tools and data to manage and maximize returns on ad space.

Ad Exchange

• Real-Time Bidding: Excited about real-time bidding, enabling advertisers to bid on impressions using their own data. Increases efficiency and benefits all parties involved.
• Results: Some publishers are seeing 130% increases in yields compared to ads sold directly to ad networks.

Content Network

• Features: Introduced several new features, including interspace advertising, frequency capping, above-the-fold targeting, new measurement tools, and more formats.
• Remarketing: Launched remarketing, allowing advertisers to show ads to users who have visited their website or YouTube channel. Helps in connecting with interested users.

Mobile Advertising

• Importance: Mobile advertising is becoming increasingly important as users transition to smartphones.
• Ease of Use: Making it easy for advertisers to extend their existing campaigns to mobile without starting from scratch.
• New Formats and Targeting Options:
  • Click-to-Call feature: Automatically includes a phone number in ads on smartphones for direct calls.
  • Increased call-through rates observed.

Summary

• Susan emphasized the numerous innovations the Ad team is working on, highlighting the focus on improving user experience and ad relevance across search, display, and mobile platforms.

Jeffrey Terrence Huber, the Former Senior Vice President of Google (X), discussed several topics during the Q1 2010 Earnings Call:

1. Mobile First Approach:

   • Google is adopting a "mobile-first" approach to most of its activities.
   • This involves leveraging the unique characteristics of smartphones, such as location awareness.

2. Near Me Now Feature:

   • Launched a feature called "Near Me Now" that uses the user's location as a search query.
   • When accessing google.com from a smartphone, a "Near Me Now" link appears below the search box, showing nearby points of interest.

3. Stars in Search Feature:

   • Introduced a feature called "Stars in Search" to help users find previously starred search results when they switch from desktop to mobile devices.
   • Users can star search results on desktop, and these results will appear at the top when searching from their smartphones.

4. Integration with Google Maps:

   • Starred results now work with Google Maps on smartphones, making it easier to get directions or more information about a location.

5. Android Momentum:

   • Android is powering 34 devices, up 70% quarter-over-quarter, from 12 different Original Equipment Manufacturers (OEMs).
   • Over 60,000 Android devices are sold and activated daily.
   • Android Market offers over 38,000 apps, up 70% quarter-over-quarter.

6. Chrome Browser Innovations:

   • Chrome addresses language barriers by automatically translating web pages into 52 different languages.
   • Chrome translates over 60 million pages per day.

7. Apps Marketplace for Google Apps:

   • Launched an Apps Marketplace for Google Apps, offering thousands of enterprise applications integrated with the Google Apps experience.

8. Google I/O Developer Conference:

   • The upcoming Google I/O Developer Conference is anticipated to announce significant developments and cover content on leveraging Google's open platforms.

These points highlight the focus on innovation and the integration of various Google products, particularly in the mobile and enterprise spaces.