Google Revenue Beats Expectations, But with A Caveat

Google Revenue Beats Expectations, But with A Caveat

Google Revenue Beats Expectations, But with A Caveat

Google Inc (NASDAQ:GOOG) EPS for Q1 beat expectations coming in at $11.57 vs street at $10.68, driven by a $1.45 est. benefit from taxes. Google Inc (NASDAQ:GOOG) posted gross revenue of $13.97 (+31% Y/Y) vs.Street $14.32B.

Google Inc (NASDAQ:GOOG) standalone posted gross revenue of $12.95B (+22% Y/Y) vs. the Street at $12.9B. Motorola posted gross revenue of $1.02B vs. Street $1.43B. For net revenue (ex-TAC), Google Inc (NASDAQ:GOOG) reported $11.01B (+35% Y/Y) below
the Street at $11.12B. Operating EPS of $11.58 (+15% Y/Y) beat Street $10.65.

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Gross profit was below estimates, offset by lower operating expenses, and Google Inc (NASDAQ:GOOG) non-GAAP margins at 44.5% were below estimates. Analysts estimate Google Website revenue growth, ex-FX, decelerated a little to 19% in 1Q, down from 20% in Q4, not bad but there was higher distribution TAC.

US revenue growth slowed, Intl improved

US revenue growth at 19.7% decelerated from 20.3% in 4Q, and was likely aided by around 400bps by the App policy accounting change. Int’l revenue growth, ex- FX, decelerated modestly to 26% y/y from 27% in 4Q. Perhaps gross profit growth is a good metric to use given Network and app policy changes, and Google gross profit growth was 14.2% in 1Q, down from 15.4% in 4Q. Gross profit is likely being affected by investments in infrastructure, content, hardware and maybe even Fiber.

Core business metrics still shifting, CPCs better

Click growth decelerated 400bps q/q to 20% y/y, in-line with estimates, while CPCs fell 4% y/y. Distribution partner TAC at $680 was above estimates, and represented 7.9% of Website revenues, which may continue to fuel mobile transition fears. It is likely that the mobile transition contributed to some of Google’s US revenue deceleration, which makes the Enhanced Campaign rollout and GPS outlook important for 2H’13.

Motorola misses top line, muted near-term outlook

Motorola revenues at $1.0bn were below estimates of $1.3bn and non-GAAP margins were at -18% in the quarter, below -11% expectations. Google suggested the business restructuring is going well on the call, but did not provide a product update.


US was a little weaker while International was stable. Google Product Search changes didn’t appear to have a notable impact on Google Inc (NASDAQ:GOOG)’s revenues, so eBay and Amazon shouldn’t see incremental margin/traffic concerns. Google network revenues decelerated, which could be a negative for network partners.

Google sites

Google Sites revenue increased +18% Y/Y to $8.64B, modestly below the Street at $8.67B, with strong contribution likely from Google Inc (NASDAQ:GOOG) Shopping (PLAs), YouTube (TrueView ads), and mobile. Google Inc (NASDAQ:GOOG) Network revenue increased +12% Y/Y to $3.26B, below the Street at $3.48B, with the shortfall driven partially by changes to Google ad policies. Licensing & Other revenue increased +150% Y/Y to $1.05B, ahead of the Street at $781MM although some of this beat is driven by an accounting change.

Currency impact

Excluding gains related to FX hedging, with constant Y/Y FX rates, revenue in 1Q would have been $110MM higher ($11MM higher on a constant Q/Q FX basis).

Google glass

On the conference call, CEO Larry Page stated:

And just this week, after three years of development, we started handing over Glass devices to developers. I get chills when I use a product that is the future, and that happens when I use Glass. Some day we’ll all be amazed that computing involved fishing around in pockets and purses. There’s so many opportunities in the world to create technology that makes people’s lives better. We are still only at 1% of what’s possible. We are really just getting started. And that is why I’m so excited to be here working with our Googlers to take our Company to the next level.

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