Google Inc., Q1 2007 Earnings Call, Apr-19-2007 - NasdaqGS:GOOGL

NasdaqGS:GOOGL

Sergey Brin [Executives] 💬

During the Q1 2007 Earnings Call, Sergey Brin provided the following comments:

Partnerships and User Growth in YouTube:
- Noted improvements made to YouTube, including the addition of several new partners such as the BBC, the NBA, and the Sundance Channel.
- Mentioned the partnership with a number of presidential candidates for the 2008 election, referred to as "You Choose '08."
- Highlighted the growth of YouTube both in terms of user base and partners.
Mobile Partnerships:
- Announced new mobile partnerships, including deals with Nokia and Vodafone.
Advertising Improvements:
- Introduced Pay-Per-Action in beta, which allows advertisers to specify an action (like a purchase) and pay for each occurrence.
- Mentioned the introduction of the Website Optimizer, which helps advertisers test and refine their websites to optimize conversions.
- Discussed the expansion of Google Checkout, announcing new partners such as CompUSA, Blue Nile, and a partnership with RadioShack and B&H.
Online Advertising Expansion:
- Highlighted the growth of AdSense for Content, including the signing of Daum, a large Korean site, bringing the total number of top 20 social networks in the AdSense network to 75%.
- Discussed the intent to acquire DoubleClick, emphasizing the potential to integrate search and display campaigns for advertisers.
Offline Advertising Initiatives:
- Announced a partnership with EchoStar for television advertising, allowing the delivery of advertisements to DISH Network viewers.
- Discussed a recent partnership with Clear Channel in radio advertising, opening up inventory for advertisers who want to use the radio medium.
User Experience and Advertising Vision:
- Emphasized the importance of making advertising better for everyone, stating that relevant and interesting advertising can be effective without being intrusive.
- Shared the belief that advertising can be made more effective and enjoyable for both advertisers and users.

Sergey Brin's comments highlighted the company's focus on partnerships, advertising innovations, and the user experience, demonstrating the broad scope of Google's initiatives and strategies for growth.

Kim Jabal [Executives] 💬

During the Google Inc. Q1 2007 Earnings Call, Kim Jabal, the Director of Investor Relations, made the following statements:

Introduction:
- Gave a formal welcome to participants and introduced the call as being recorded.
- Provided an overview of the executives present on the call, including Eric Schmidt, CEO; George Reyes, CFO; Larry Page, Founder and President of Products; Sergey Brin, Founder and President of Technology; Jonathan Rosenberg, Senior Vice President of Product Management; and Omid Kordestani, Senior Vice President of Global Sales and Operations.
Webcast and Materials:
- Noted that the call was being webcast from the Investor Relations website.
- Mentioned that the press release and presentation slides accompanying the call were available on the website.
- Announced that a replay of the call would be available within a few hours.
Forward-Looking Statements:
- Advised listeners that some comments made during the call would be forward-looking and subject to risks and uncertainties.
- Listed several areas that would be covered in the forward-looking statements, including international growth, partner deals, headcount growth, investments in partnerships, distribution and content, product innovation, operating expenses, capital expenditures, margins, stock-based compensation charges, and traffic acquisition cost rates.
- Emphasized that actual results could differ materially from the forward-looking statements due to a variety of factors, some of which are beyond the company's control.
Risk Factors:
- Recommended that listeners refer to the company's SEC filings, including the annual report on Form 10-K for the year ended December 31, 2006, and the earnings release posted on the website for a detailed description of the risk factors affecting the company's results.
Financial Measures:
- Noted that certain financial measures used during the call, such as EPS, net income, operating margin, operating income, and effective tax rate, were expressed on a non-GAAP basis and adjusted to exclude charges related to stock-based compensation.
- Mentioned that in the fourth quarter of 2006, the company removed certain discrete tax items from non-GAAP net income and EPS.
- Introduced the concept of free cash flow, defined as net cash provided by operating activities minus capital expenditures.
- Indicated that the company reported GAAP results and provided reconciliations of non-GAAP measures to GAAP financial measures in the earnings release, which could be obtained from the Investor Relations section of the website.
Transition:
- Handed over the call to Eric Schmidt for further discussion.

Eric Schmidt [Executives] 💬

During the Q1 2007 Earnings Call, Eric Schmidt made several remarks:

Introduction and Overview:
- Expresses excitement about the financial results of the quarter.
- Reminds listeners about the seasonally slower summer growth period.
- Highlights the strength of the core business, noting excellent performance in the U.S. and even better performance internationally.
Core Business Strength:
- Emphasizes the importance of the core business, which is driving the company's success.
- Mentions significant investments in the core business, including data centers, engineering, sales and support, and partnerships.
- Acknowledges the tendency to focus on new initiatives and emphasizes the vitality and innovation of the core services.
Expansion and Risk-taking:
- Discusses the success of the core business allowing the company to take calculated risks in new markets and expand into new products.
- Mentions geographic expansion, particularly in Europe and Asia, with a focus on China among other markets.
- Notes expansions into multiple platforms and formats, including display advertising, video, mobile, and enterprise business.
Offline Media Expansion:
- Talks about the expansion into offline media, including radio, TV, and print, mentioning deals with Clear Channel and EchoStar.
Technology and Efficiency:
- Reiterates the company's focus on targeted, useful, and effective advertising.
- Highlights the importance of technology and efficiency in benefiting end users.
User Benefit Focus:
- Stresses that user benefit is the most important factor in decision-making.
- Discusses the importance of scaling learnings globally.
Financial Performance:
- Hands over the financial details to George Reyes.
Product Performance:
- Hands over the discussion of product performance to Larry Page.
Partnerships and Advertising:
- Hands over the discussion of partnerships and advertising to Sergey Brin.
Closing Remarks:
- Reflects on the quarter and the effectiveness of Google's global growth strategy.
- Notes the success of the innovation model and the strong performance of partnerships.
- Emphasizes the potential for growth in the core search and ads business.
- Mentions the complementarity of new ad initiatives and the enterprise business.
- Acknowledges the management team's and employees' ability to manage growth operationally.
Q&A Session:
- Engages in answering questions, often directing specific questions to other executives for detailed responses.
Closing Statement:
- Thanks everyone for attending the call.
- Reiterates the benefits of the growth rate of the industry and the company's model.
- Highlights the scale of the business and expresses optimism about future growth.
- Ends the call, thanking everyone for their time.

George Reyes [Executives] 💬

During the Q1 2007 Earnings Call, George Reyes, the Chief Financial Officer of Alphabet Inc. (then known as Google Inc.), provided the following comments:

Financial Performance Overview:
- Gross revenue increased 63% over Q1 of the previous year to $3.7 billion.
- Revenue from Google properties was $2.3 billion, representing a strong year-over-year growth of 76%.
- Experiences healthy traffic growth in the Google.com business both domestically and internationally.
- Monetization continues to be strong, positively impacted by improvements in ads in Q1, as well as in prior quarters.
AdSense Revenues:
- AdSense revenues increased 45% over the previous year to $1.3 billion.
- Driven by strong growth across existing partners and the launch of a few new partners.
- Experiences very strong traffic gains in the quarter, particularly internationally.
International Performance:
- International revenue was 47% of total revenue, or $1.7 billion.
- The UK was particularly strong with revenues of $578 million and 23% sequential growth, rebounding from Q4.
- Other markets that contributed meaningfully to growth included Germany, France, Spain, Japan, and Australia.
- Smaller markets like Ireland, Brazil, and Korea (benefiting from a partnership with Daum) also performed well.
Traffic Acquisition Costs (TAC):
- Traffic acquisition costs were $1.1 billion.
- The majority of TAC is related to the amounts paid to AdSense partners, totaling just over $1 billion.
- Distribution partner-related TAC totaled $73 million in Q1, associated with some of the largest distribution deals ramping up.
- Indicates that there may be additional pressure on TAC rates going forward as the distribution in the AdSense partner network grows and new initiatives are embarked upon.
Other Costs of Revenue:
- Increased by $38 million over the prior quarter, primarily due to increases in depreciation related to data centers, bandwidth costs, and content acquisition costs.
Operating Expenses (OpEx):
- Included $184 million in stock-based compensation and totaled $972 million.
- Payroll-related and facilities expenses increased by $13 million over the prior quarter to $506 million.
- R&D decreased as a percentage of revenue, primarily due to lower expenses related to company bonuses in Q1 relative to Q4.
- Sales and marketing and G&A expenses were relatively flat as a percentage of revenue.
Non-GAAP Operating Profit:
- Rose to $1.4 billion with non-GAAP operating margins of 38%, up from 37% in Q4.
- Margins may decline as the company continues to invest heavily in the business, with expected continued growth in headcount and investments in AdSense partnerships, distribution partners, and content.
Capital Expenditures (CapEx):
- Totaled $597 million.
- While there were some real estate-related expenditures, the majority was related to IT infrastructure investments, including data centers, servers, and networking equipment.
- Expectation to make continued significant capital expenditure investments to drive the growth of the business.
Cash Flow:
- Operating cash flow was strong at just over $1.2 billion.
- Free cash flow, a non-GAAP measure defined as cash flow from operations less CapEx, increased to $623 million.
Tax Rate on Stock-Based Compensation:
- Noted a very modest change from 134 to 183 in response to a question about the tax rate applied to determine the shield on stock-based compensation.

Reyes provided detailed insights into the financial performance of the company, highlighting strong growth across various segments and markets, as well as the financial implications of strategic initiatives and investments.

Larry Page [Executives] 💬

During the Q1 2007 Earnings Call, Larry Page made several comments highlighting the company's achievements and strategic directions. Here is a detailed summary of his remarks:

Core Business Focus: Larry emphasized that about 70% of Google's resources are dedicated to the core business of search and ads, with the remaining 30% primarily focused on new initiatives and innovations.
Improvements in Search Relevance and User Experience:
- Larry noted significant improvements in search relevance and quality in many markets.
- User experience enhancements, such as integrating maps and reviews directly into search results, were rolled out in several countries.
Content Personalization: Larry mentioned strides in personalizing search results to tailor them to individual users.
Web Computing and Product Growth:
- Gmail opened up sign-ups, experiencing healthy growth.
- Docs & Spreadsheets were improved and released in 15 new languages, also seeing substantial growth.
Google Apps Premier Edition: Larry highlighted the launch of Google Apps Premier, a suite of services for companies and universities that includes Gmail, Docs & Spreadsheets, and other tools. Notable customers include Northwestern University and organizations in Kenya and Rwanda, with pilots underway at GE and P&G.
YouTube Growth and Enhancements:
- YouTube saw accelerated growth and improvements, including enhanced community features like video ratings and discussions.
- Community engagement features were improved, contributing to increased usage.
Personalized Homepage Enhancements: A new, improved version of the personalized homepage was released, featuring customizable themes and weather information.
Google Talk Integration: Google Talk was integrated into the personalized homepage, allowing users to see their friends online.
User Experience Focus: Larry reiterated Google's commitment to enhancing the user experience and developing new products.

Overall, Larry's comments reflected Google's ongoing dedication to improving its core search and advertising business while also expanding into new areas like web computing and personalized content. He highlighted the importance of user experience and the company's efforts to innovate and grow in various markets.