Google Reports: Revenues Up 36%; Paid Clicks Up 24%; Cost Per Click Down 6%

After the stock market closed today Google reported its earnings for the quarter and fiscal year ending December 31, 2012 which we better than expected sending shares of Google up over 3% in after hours trading.

Google Inc. reported consolidated revenues of $14.42 billion for the quarter ended December 31, 2012, an increase of 36% compared to the fourth quarter of 2011.

Google’s fourth-quarter profit improved 6.7%.

Google posted a quarterly profit of $2.89 billion, or $8.62 a share, up from $2.71 billion, or $8.22 a share, a year earlier.

The only negative issue with Google seems to be the costs and losses incurred in the Motorola deal, here is the rest:

Google Revenues (advertising and other) – Google revenues were $12.91 billion, or 89% of consolidated revenues, in the fourth quarter of 2012, representing a 22% increase over fourth quarter 2011 revenues of $10.58 billion.

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 24% over the fourth quarter of 2011 and increased approximately 9% over the third quarter of 2012.

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 6% over the fourth quarter of 2011 and increased approximately 2% over the third quarter of 2012.

TAC – Traffic acquisition costs, the portion of revenues shared with Google’s partners, increased to $3.08 billion in the fourth quarter of 2012, compared to $2.45 billion in the fourth quarter of 2011. TAC as a percentage of advertising revenues was 25% in the fourth quarter of 2012, compared to 24% in the fourth quarter of 2011.

The majority of TAC is related to amounts ultimately paid to our Network members, which totaled $2.44 billion in the fourth quarter of 2012. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $634 million in the fourth quarter of 2012.

    • Google Sites Revenues – Google-owned sites generated revenues of $8.64 billion, or 67% of total Google revenues, in the fourth quarter of 2012. This represents a 18% increase over fourth quarter 2011 Google sites revenues of $7.29 billion.
    • Google Network Revenues – Google’s partner sites generated revenues of $3.44 billion, or 27% of total Google revenues, in the fourth quarter of 2012. This represents a 19% increase from fourth quarter 2011 Google network revenues of $2.88 billion.
    • Other Revenues – Other revenues from Google were $829 million, or 6% of total Google revenues, in the fourth quarter of 2012. This represents a 102% increase over fourth quarter 2011 other revenues of $410 million.

    Google International Revenues – Google revenues from outside of the United States totaled $6.9 billion, representing 54% of total Google revenues in the fourth quarter of 2012, compared to 53% in the third quarter of 2012 and 53% in the fourth quarter of 2011.

    Foreign Exchange Impact on Google Revenues – Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2012 through the fourth quarter of 2012, our Google revenues in the fourth quarter of 2012 would have been $130 million lower. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the fourth quarter of 2011 through the fourth quarter of 2012, our Google revenues in the fourth quarter of 2012 would have been $193 million higher.

    • Google revenues from the United Kingdom totaled $1.30 billion, representing 10% of Google revenues in the fourth quarter of 2012, compared to 10% in the fourth quarter of 2011.
    • In the fourth quarter of 2012, we recognized a benefit of $37 million to Google revenues through our foreign exchange risk management program, compared to $25 million in the fourth quarter of 2011.

    Reconciliations of our non-GAAP international revenues excluding the impact of foreign exchange and hedging to GAAP international revenues are included at the end of this release.
    Motorola Mobile Revenues (hardware and other) – Motorola Mobile revenues were $1.51 billion, or 11% of consolidated revenues in the fourth quarter of 2012.

Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs, credit card processing charges, and manufacturing and inventory-related costs, increased to $3.14 billion, or 22% of revenues, in the fourth quarter of 2012, compared to $1.25 billion, or 12% of revenues, in the fourth quarter of 2011.

Operating Expenses – Operating expenses, other than cost of revenues, were $4.81 billion in the fourth quarter of 2012, or 33% of revenues, compared to $3.38 billion in the fourth quarter of 2011, or 32% of revenues.

Amortization Expenses – Amortization expenses of acquisition-related intangible assets were $289 million for the fourth quarter of 2012.  Of the $289 million, $153 million was as a result of the acquisition of Motorola, of which $116 million was allocated to Google and $37 million was allocated to Motorola Mobile.

Stock-Based Compensation (SBC) – In the fourth quarter of 2012, the total charge related to SBC was $708 million, compared to $536 million in the fourth quarter of 2011.

We currently estimate SBC charges for grants to employees prior to January 1, 2013 to be approximately $2.5 billion for 2013. This estimate does not include expenses to be recognized related to employee stock awards that are granted after December 31, 2012 or non-employee stock awards that have been or may be granted.

Operating Income – On a consolidated basis, GAAP operating income in the fourth quarter of 2012 was $3.39 billion, or 24% of revenues. This compares to GAAP operating income of $3.51 billion, or 33% of revenues, in the fourth quarter of 2011. Non-GAAP operating income in the fourth quarter of 2012 was $4.27 billion, or 30% of revenues. This compares to non-GAAP operating income of $4.04 billion, or 38% of revenues, in the fourth quarter of 2011.

  • Google Operating Income – GAAP operating income for Google was $3.75 billion, or 29% of Google revenues, in the fourth quarter of 2012. This compares to GAAP operating income of $3.51 billion, or 33% of Google revenues, in the fourth quarter of 2011. Non-GAAP operating income in the fourth quarter of 2012 was $4.42 billion, or 34% of Google revenues. This compares to non-GAAP operating income of $4.04 billion in the fourth quarter of 2011, or 38% of Google revenues.
  • Motorola Mobile Operating Loss – GAAP operating loss for Motorola Mobile was $353 million, or -23% of Motorola Mobile revenues in the fourth quarter of 2012. Non-GAAP operating loss for Motorola Mobile in the fourth quarter of 2012 was $152 million, or -10% of Motorola Mobile revenues.

Interest and Other Income, Net – Interest and other income, net, was $152 million in the fourth quarter of 2012, compared to an expense of $18 million in the fourth quarter of 2011.

Income Taxes – Our effective tax rate was 18% for the fourth quarter of 2012.

Net Income – GAAP net income in the fourth quarter of 2012 was $2.89 billion, compared to $2.71 billion in the fourth quarter of 2011. Non-GAAP net income was $3.57 billion in the fourth quarter of 2012, compared to $3.13 billion in the fourth quarter of 2011. GAAP EPS in the fourth quarter of 2012 was $8.62 on 335 million diluted shares outstanding, compared to $8.22 in the fourth quarter of 2011 on 329 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2012 was $10.65, compared to $9.50 in the fourth quarter of 2011.

Cash Flow and Capital Expenditures (including Home) – Net cash provided by operating activities in the fourth quarter of 2012 totaled $4.67 billion, compared to $3.92 billion in the fourth quarter of 2011. In the fourth quarter of 2012, capital expenditures were $1.02 billion, the majority of which was for production equipment, data center construction and facilities-related purchases. 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 2012, free cash flow was $3.65 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, 2012, cash, cash equivalents, and marketable securities were $48.1 billion.

Headcount – On a worldwide basis, we employed 53,861 full-time employees (37,544 in Google and 11,113 in Motorola Mobile and 5,204 in Motorola Home) as of December 31, 2012, compared to 53,546 full-time employees as of September 30, 2012.

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