Google Brings Back The Growth In The Third Quarter. (Live Notes)


After two quarters of flat sales, Google announced a resumption of growth in the third quarter, with revenues up 7 percent to $5.95 billion. Net income was up 27 percent to $1,64 billion, or $5.13 EPS, which was above consensus.

Google generated $1.8 billion for AdSense partner sites, or 30 percent of revenues. Paid clicks on AdSense ads were up 14 percent annually and up 4 percent from the second quarter, but the cost per click (or how much Google and AdSense publishers make from each of those clicks) was down 6 percent annually and 5 percent sequentially.

The earnings call is about to start. My live notes below:

Ooh, something new, they are going to let the people on the call vote for the best questions.

CEO Eric Schmidt: We believe the worst of the recession is behind us. We now have the business confidence to invest in the next stage of innovation.

Mobile, 30% growth quarter over quarter. Android now 12 devices in 26 countries, 32 carriers.

1M publishers using AdSense. Integrated DoubleClick into the exchange.

enterprise business, not only accelerating, but some customers, Genentech, Motorola, etc, very string feedback.

In 10% areas where we think it is very promising. We will focus more on strategic acquisitions. We are open for business.

CFO Patrick Pichette: headcount was slightly down, revenues up, TAC was 27% of revenues.

free cash flow $2.5B

Nikesh Arora, president global sales: Strength in Brazil. mentions renewed deal with eBay, including

YouTube: 90% of the top 50 AdAge advertisers have run ads on YouTube. (Palm, McDonalds). deals with all 4 record labels, deal with Channel 4 in the UK. expect premium inventory to drive monetization.

New ad exchange opens up ad ecosystem. 24 (?) of the 25 largest ad networks are already on the exchange

Jonathan Rosenberg, SVP Product Management: focusing on local, ads can go to “Place pages” have 50M of them for small and mid-sized businesses. can also have phone numbers go through Google Voice.

We see users come to us with harder queries, so adding more pays for them to work with results. Launched more search options. [by time, commercial sites, etc).

Display business is going very well, but still very inefficient. Something lie 25% of all inventory goes unsold, which is why we launched DoubleClick ad network.

big bets on making the Web better, launched new version of Chrome, Chrome Frame, speeds up the Web.


Q: What are goals for Doubelclick ad exchange?

Jonathan Rosenberg: We think we are making great progress with fixing the very fractured ad ecosystem. We still have to make it easier for advertiser to place ads across a wider variety of websites.

Nikesh Arora: Over half of the largest ad networks are already using the new ad exchange.

Q: how did F/X imoact cost per click?

A: Paid click remained helathy with 14% growth. On CPC, year over year, Euro had an 8% difference, so these numbers are material, they will drive quite a but of impact. We have healthy growth in international markets, which are lower CPC.

Q: Is Google going to do large acquisitions or small technology buys?

Schmidt: We historically have done acquisitions one a month or so, typically not very expensive, they bring some specific technology. A type of vertical search or sorting ads. Android, similarly. There is no particular rhyme or reason. It is a function of teh individuals. We are certainly looking for larger acquisitions, but would need a rationale, revenue accelerator or user base. YouTube and Doubleclick will be immensely succeful, but those will be rare.

Q: Gmail outages?

Jonathan: We are making sure that does not happen again. It was not afunction of any underinvestment in server capacity or anything like that.

Q: Capex is down 70%. are you underspending?

Patrick: In the previous quarter I warned that if you took a ruler and went down it would look like we would hit zero, that is not happening, we are investing ahead of what we think our needs are going to be. Capex is going to be lumpy.

Schmidt: I would like to be spending more in this area because that CApex spendingcreates opportunities for futre growth. The decrease in Capex you’ve seen has been because of improvements, mostly in software. Also Moore’s law improvements with multi-core architectures. We need fewer CPUs to get same levels of performance,mostly in data centers. It was more atransition from one architecture to another than a change in strategic directions.

Q: Are you seeing better conversion rates?

Nikesh: We don’t comment specifically. But consumers cat rationally, when prices are down they buy. On the consumer side we are seeing rational behavior. On the advertising side, big advertisers are jumping back in, while smaller ones have not yet. But overall conversion rates are holding up.

Q: How is Android and Chrome going?

Jonathan: Look at growth in devices carriers, countries. the strategy of delivering a modern OS seems to be working. Chrome OS is going very well. We are going ti deliver on the goals of speed, simplicity and security.

Schmidt: Android adoption is about to explode. You have all the necessary conditions.. a critcial period. With Chrome OS, he internal demos we have seen indicate it is a material improvement in platforms. It is not quiet done. We hope to get another version out this year.

Q: update on Youtube path to profitability? Can you break out revenues?

Patrick: In general we are really pleased about YouTube’s performance. Completely in line with where we discussed, on its path to profitability in the not-too-distant future. We are monetizing more than a billion video views every week on YouTube.

Nikesh: we have been pretty much been able to sell homepage ads across the world, 90% of US homepage ads were sold out in the quarter. Beginning to unleash pre-roll inventory to let our slaesforce sell it. We are creating more inventory for our ad salesforce to be able to sell ads against [music labels, partnerships, etc].

Q: international revenue is accelerating. which reasons are driving the acceleration?

Nikesh: Strength across various markets. Brazil has been strong. no slowdown in Asia pacific, China has down well. Northern Europe

Q: How do you define investing heavily in the future, capex, hadcount?

Schmidt: It depends. If we see a product succeeding we invest more to accelerate it. If we see a product not do well we starve it until we know what we did wrong.

We are short key technical talent to achieve some of these initiatives. (i.e always looking for good engineers).

Q: How material are mobile searches?

Patrick: Again, we don’t give the detail numbers. On a quarter over quarter basis, mobile searches grew 30% on Google. It tells you something about the mobile space, the smartphones, and how they are transformative. They are basically transforming how people live on a mobile basis. If we move forward the adoption of these mobile phones by lowering the cost because it is open source, think of how many searches [that will produce].

Q: Will spending as a percentage of revenues go up again?

Patrick: Now it is time to go back to what we do best: innovate, invest, invent the future.

Q: Are you pulling out of some site acquisition deals?

Patrick: We are not pulling out of any deals. Each one is negotiated separately.

Q: how rapidly do yu expect headcount to grow over next 2 years?

Patrick: If you think about everything we had lived through the past year, it would have been great to have been able to keep hiring sooner. It is not about the headcount, it is about finding the best minds. As we find them, we hire them. You have to find the right Googler.

Schmidt: I think we do recruiting well. We will grow at whatever rate we can. We have the confidence to go back to do the things we do well.

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