Google on Thursday reported solid growth in the fourth-quarter of 2011, but the company missed earnings estimates and shares of Google stock took a hit as a result. The Mountain View, California-based company pulled in $8.13 billion in revenue during the December quarter, up 25% from the same quarter in 2010, and earnings came in at $9.50 per share. Wall Street was expecting $8.43 billion in revenue a profit of $10.51 per share however, and Google’s stock dipped 9% in after-hours trading. Revenue from Google’s websites was up 29% year-over-year to $7.29 billion and affiliate advertising grew 15% to $2.88 billion over the same period. Google’s full press release follows below.
Google Announces Fourth Quarter and Fiscal Year 2011 Results
MOUNTAIN VIEW, Calif. – January 19, 2012 – Google Inc. (NASDAQ: GOOG) today announced financial results for the quarter and the fiscal year ended December 31, 2011.
“Google had a really strong quarter ending a great year. Full year revenue was up 29%, and our quarterly revenue blew past the $10 billion mark for the first time,” said Larry Page, CEO of Google. “I am super excited about the growth of Android, Gmail, and Google+, which now has 90 million users globally – well over double what I announced just three months ago. By building a meaningful relationship with our users through Google+ we will create amazing experiences across our services. I’m very excited about what we can do in 2012 – there are tremendous opportunities to help users and grow our business.”
Q4 Financial Summary
Google reported revenues of $10.58 billion for the quarter ended December 31, 2011, an increase of 25% compared to the fourth quarter of 2010. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the fourth quarter of 2011, TAC totaled $2.45 billion, or 24% of advertising revenues.
Google reports operating income, operating margin, net income, and earnings per share (EPS) on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures at the end of this release.
- GAAP operating income in the fourth quarter of 2011 was $3.51 billion, or 33% of revenues. This compares to GAAP operating income of $2.98 billion, or 35% of revenues, in the fourth quarter of 2010. Non-GAAP operating income in the fourth quarter of 2011 was $4.04 billion, or 38% of revenues. This compares to non-GAAP operating income of $3.38 billion, or 40% of revenues, in the fourth quarter of 2010.
- GAAP net income in the fourth quarter of 2011 was $2.71 billion, compared to $2.54 billion in the fourth quarter of 2010. Non-GAAP net income in the fourth quarter of 2011 was $3.13 billion, compared to $2.85 billion in the fourth quarter of 2010.
- GAAP EPS in the fourth quarter of 2011 was $8.22 on 329 million diluted shares outstanding, compared to $7.81 in the fourth quarter of 2010 on 326 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2011 was $9.50, compared to $8.75 in the fourth quarter of 2010.
- Non-GAAP operating income and non-GAAP operating margin exclude the expenses related to stock-based compensation (SBC). Non-GAAP net income and non-GAAP EPS exclude the expenses related to SBC and the related tax benefits. In the fourth quarter of 2011, the charge related to SBC was $536 million, compared to $396 million in the fourth quarter of 2010. The tax benefit related to SBC was $114 million in the fourth quarter of 2011 and $89 million in the fourth quarter of 2010. Reconciliations of non-GAAP measures to GAAP operating income, operating margin, net income, and EPS are included at the end of this release.
Q4 Financial Highlights
Revenues – Google reported revenues of $10.58 billion in the fourth quarter of 2011, representing a 25% increase over fourth quarter 2010 revenues of $8.44 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting TAC.
Google Sites Revenues – Google-owned sites generated revenues of $7.29 billion, or 69% of total revenues, in the fourth quarter of 2011. This represents a 29% increase over fourth quarter 2010 revenues of $5.67 billion.
Google Network Revenues – Google’s partner sites generated revenues of $2.88 billion, or 27% of total revenues, in the fourth quarter of 2011. This represents a 15% increase from fourth quarter 2010 network revenues of $2.50 billion.
International Revenues – Revenues from outside of the United States totaled $5.60 billion, representing 53% of total revenues in the fourth quarter of 2011, compared to 55% in the third quarter of 2011 and 52% in the fourth quarter of 2010. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2011 through the fourth quarter of 2011, our revenues in the fourth quarter of 2011 would have been $239 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the fourth quarter of 2010 through the fourth quarter of 2011, our revenues in the fourth quarter of 2011 would have been $39 million lower.
- Revenues from the United Kingdom totaled $1.06 billion, representing 10% of revenues in the fourth quarter of 2011, compared to 10% in the fourth quarter of 2010.
- In the fourth quarter of 2011, we recognized a benefit of $25 million to revenues through our foreign exchange risk management program, compared to $25 million in the fourth quarter of 2010.
A reconciliation of our non-GAAP international revenues excluding the impact of foreign exchange and hedging to GAAP international revenues is included at the end of this release.
Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 34% over the fourth quarter of 2010 and increased approximately 17% over the third quarter of 2011.
Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 8% over the fourth quarter of 2010 and decreased approximately 8% over the third quarter of 2011.
TAC – Traffic acquisition costs, the portion of revenues shared with Google’s partners, increased to $2.45 billion in the fourth quarter of 2011, compared to TAC of $2.07 billion in the fourth quarter of 2010. TAC as a percentage of advertising revenues was 24% in the fourth quarter of 2011, compared to 25% in the fourth quarter of 2010.
The majority of TAC is related to amounts ultimately paid to our Network members, which totaled $2.01 billion in the fourth quarter of 2011. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $442 million in the fourth quarter of 2011.
Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs as well as credit card processing charges, increased to $1.25 billion, or 12% of revenues, in the fourth quarter of 2011, compared to $877 million, or 10% of revenues, in the fourth quarter of 2010.
Operating Expenses – Operating expenses, other than cost of revenues, were $3.38 billion in the fourth quarter of 2011, or 32% of revenues, compared to $2.51 billion in the fourth quarter of 2010, or 30% of revenues.
Stock-Based Compensation (SBC) – In the fourth quarter of 2011, the total charge related to SBC was $536 million, compared to $396 million in the fourth quarter of 2010.
We currently estimate SBC charges for grants to employees prior to January 1, 2012 to be approximately $2.0 billion for 2012. This estimate does not include expenses to be recognized related to employee stock awards that are granted after December 31, 2011 or non-employee stock awards that have been or may be granted.
Operating Income – GAAP operating income in the fourth quarter of 2011 was $3.51 billion, or 33% of revenues. This compares to GAAP operating income of $2.98 billion, or 35% of revenues, in the fourth quarter of 2010. Non-GAAP operating income in the fourth quarter of 2011 was $4.04 billion, or 38% of revenues. This compares to non-GAAP operating income of $3.38 billion, or 40% of revenues, in the fourth quarter of 2010.
Interest and Other Income (Expense), Net – Interest and other income (expense), net was an expense of $18 million in the fourth quarter of 2011, compared to an income of $160 million in the fourth quarter of 2010.
Income Taxes – Our effective tax rate was 22% for the fourth quarter of 2011.
Net Income – GAAP net income in the fourth quarter of 2011 was $2.71 billion, compared to $2.54 billion in the fourth quarter of 2010. Non-GAAP net income was $3.13 billion in the fourth quarter of 2011, compared to $2.85 billion in the fourth quarter of 2010. GAAP EPS in the fourth quarter of 2011 was $8.22 on 329 million diluted shares outstanding, compared to $7.81 in the fourth quarter of 2010 on 326 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2011 was $9.50, compared to $8.75 in the fourth quarter of 2010.
Cash Flow and Capital Expenditures – Net cash provided by operating activities in the fourth quarter of 2011 totaled $3.92 billion, compared to $3.53 billion in the fourth quarter of 2010. In the fourth quarter of 2011, capital expenditures were $951 million, the majority of which was related to IT infrastructure investments, including data centers, servers, and networking equipment. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the fourth quarter of 2011, free cash flow was $2.97 billion.
We expect to continue to make significant capital expenditures.
A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release.
Cash – As of December 31, 2011, cash, cash equivalents, and short-term marketable securities were $44.6 billion.
Headcount – On a worldwide basis, Google employed 32,467 full-time employees as of December 31, 2011, up from 31,353 full-time employees as of September 30, 2011.
