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Upswing

Google's Financial Results: Upswing Indicator?

Google

With economists and the tired-out general public desperately sniffing the air for the scent of economic recovery, results from a giant like Google are extremely significant. Its 2009 figures are now out. And they're "Okay."

Google's Eric Schmidt sets the tone of is results in the first paragraph of its press release: "Google had a strong fourth quarter, with 17% year over year revenue growth." That sounds impressive, but Schmidt was careful to note that the "global economy is still in the early days of recovery" which means Google's results are really an "extraordinary end to the year" rather than merely a 17% growth figure.

That 17% figure relates to Google's fourth quarter gross revenue figure of $6.67 billion, up from $5.7 billion last year. This translates into an operating income of $2.48 billion for the quarter, or a margin of 37%—a truly impressive figure if you were looking at an industry like manufacturing, but Google's business structure is extremely different, so you may expect such a high number. This margin is up from 33% in 2008, and that could be considered a better indicator that Google's business is on the upswing—since it indicates that even in a time when the economy is still bleak, and advertising revenues haven't recovered yet, Google was able to more efficiently translate its revenues into profits.

Buried among the finances is the interesting TAC—that's Traffic Acquisition Costs—statistic. Google notes it as "the portion of revenues shared with Google's partners" but you can consider it as a direct measure of how much it costs Google to drive visitors to its search site and other services from other Web sites, in order that it can then serve them advertising. It includes figures like the reputed $2 million per month Google pays Apple so that its search engine is the default choice for Mobile Safari on the iPhone (something we'll have to observe carefully if, as rumors suggest, Apple may switch to Bing.) Google notes that TAC increased to $1.72 billion in the last quarter of 2009, versus $1.48 billion in 2008, and that could also be used as an indicator that Google's trying hard to keep its traffic up, and that the strategy appears to be working.

Google notes its net cash from operations was up from $2.12 billion in Q4 2008 to $2.73 billion in 2009. The company also makes several mentions that it plans to use its cash rather than hoard it—like Intel it seems keen to spend its way out of recession by continuing "to make significant capital expenditures." Schmidt even notes his company remains "optimistic about the Internet" (er...that's something we would have automatically hoped to be true!) and it will continue "to invest heavily" in technological innovation "for the benefit not only of our user and customers, but also the wider Web." Which we can take to mean the company knows it needs to invest for the future, and that it'll continue to extend creeping, grasping business tentacles into even more distant corners of Internet business in 2010.

Overall then, the results are solid. They're ahead of expectations, just, if not absolutely mind-blowing. But what's missing from these figures, of course, is any indication what Google's political moves in China might result in over the medium to long term. The financial report notes that the international revenue split rose to 53% in Q4 2009 from 50% the year before, which highlights that Google really is more of an international player...even while that implies it's more sensitive than it used to be to the foibles of global goings-on. Google's China revenues weren't astonishingly large according to some analysts—perhaps 2% of the total—but should it be forced to close its Google.cn site, and the government sealed off all access to Google.com from within the country, it could have long term repercussions on the profits. We'll have to see how the politics resolves, and look at next quarter's finances to see what's gone on though.

[Google]