My first reaction to Google's earnings was Wow!
So I listened to the call, and may have genuine thoughtful opining later, but for now, I'm just gonna dump my notes into a post. Enjoy.
Intro / Main Strategies
- Better Search quality
- More Traffic
Main Results:
- Gaining share in all key markets
- Google's reach is largest (contra Terry Semel) but no specific numbers
Other key stuff we're gonna talk about:
- China important
- Products: transcoder, maps, mobile - blackberries Google employees all use 'em
- Locally targeted ads
I'm not sure if Eric Schmidt says "Billion" more like Dr. Evil or more like Carl Sagan?
Finance Stuff
- REV - after Traffic Acquistion Costs (TAC): 1.5B
- TAC 723M - 32%
- DataCenter, Ops, CC: 181M 8%
- 887M Non-Gaap Op margins: 39% - compression warning from George...
- UK rev contribution : 15% 343M
What a headache - listening to all the exclusions / GAAP vs non-GAAP accounting is harder than trying to optimize ROI on an AdWords campaign...
Robin Williams was right that Larry Page does sound like Mr. Rogers.
Larry on their acquistions. Makes them sound very active.
- dMarc extend targeted ads to radio
- Writely? 4 people?!
- AtLast - 3D authoring
"Google is world's fastest innovator at scale" - Eric.
No Marissa today...
Onto the Q&A
Safa in the house - 1st question on CPM and brand ads.
Jonathan Rosenberg (JR) answer new ad formats - i.e. CPM ads. Large brand advertisers have access to demographics. Graphic ads have to fight text ads - they don't have that figured out. Wants to push more graphic ads
Q2: Mary Meeker. It's all-star day. Mobile transcoder a Google advantage? "The transcoder". Automatically get any format to work on your phone. All content needs to be available on all the phones. Eric: "We have a better transcoder than anyone else".
Q3: Asks about Yahoos query volume. JR: Google sees the same external data - and they have internal data. "External data is 'directionally correct'". Wow, that's faint praise. (Susan Decker at Yahoo disagrees, btw) JR won't answer how much query volume is growing.
Google thinks China is up for grabs. They think they are #2 now.
Pay per call - JR calls it "early alpha". Very exciting because "you are delivering a customer that has high odds in engaging in a transaction."
Spending Q: wants more info on the CAPEX: George: No details but we're in investment mode.
Q: Will Google buy any wireless spectrum coming up for sale this summer?
Larry: Ad supported wifi with Earthlink is being done at a relatively small scale (i.e. San Francisco and Mt. View). Larry sounds unsure that it will be profitable. No answer on spectrum.
Q: Partner deal with Dell. Vague answer on Dell deal financials George:- "both companies have done well."
JR's key to getting more ad budget spent: Improve ad targeting - gets more ad budget and more money. "Ads are still primitive". Could do better with better ads.
EBITDA - is it close to $1B? Margin: 65.4% EBITDA margin. George: Yes, EBITDA = $1B.
Question again on branded advertising - display ads - JR: opportunity outside search for branding efforts. Larry: "We don't have any philosophical issues with branding ads on our own sites" - Search is not the right place, but Orkut, Video, etc. they are open to branded ads.
Japanese market: questioner asks are you going from 15 -> 25% share in search. Is Japan a material percentage of share? A: Yes. It's Yahoo vs Google.
Q: Are Click thru rates going up? Larry does vigorous hand-waving. "Don't get fixated on CTR metrics". "Easy to make more money by reducing CPCs, and running more ads." We look carefully at revenue generated per query. JR chimes in: "Think about it in the limit -- commercial pages get more ads, non-commerical pages get fewer ads".
Q: Social network search? Sergey: Orkut - very successful social site - but much better known in Brazil than the US... Odd definition of success.
Q: New partners - Washington Post are these new? A: Yes, mostly. Q: Did they lose any? Larry says: No.
JR on Google Base - intent is to collect more info to improve Google search results. Free distribution, flexible, define metadata for your content. They haven't really planned on monetizing like a traditional classified product.
George: They added 1000 employees in the quarter. They plan to keep hiring domestically and especially internationally. Revenue per employee should trend down.
Pricing question that translates as: Are you fleecing the newer advertisers? Larry answers: Initial prices are low in auction model in new markets - early adopters get rewarded with cheaper buys. Tools to track conversions are getting more adoption - "We love that" - people using analytics. Because people know that they are making money.
Tax rate question: how did the tax rate work out and what's it gonna be in the future?
Note on this question, at Henry Blodget's www.internetoutsider.com there was a bit of a conspiracy theory in the comments. The commenter believes Google is cookin' the books.
Anyone listen to the conference call? When an analyst asked how in the world did Google manage to get a 27% tax rate for this quarter, George Reyes (the CFO) started to answer but literally only got one word in before Eric Schmidt cut him off, told him "we're not going to discuss that" and told the operator to move on to the next question.
That simply didn't happen on the call I listened to! George answered and was not cut off.
Tax rate is 30% for the year - came in a little lower this quarter.
Q: Seasonality: "Internet is predominant in the Northern Hemisphere." - Eric on seasonality. I.e. summer is slow, and the southern hemisphere isn't a big traffic source relatively.
Final question:
TAC trending down - will that continue? George: not much pressure on TAC so yes TAC is low and staying there. Large deals that are contested, you see higher prices. Generally, the model works.
What wasn't asked: Not a single mention about click fraud.
¶ 4/20/2006
