Schmidt: "Our Next Huge Business Is Display" And Mobile Growing Too (4Q09 Earnings)

Google Just announced earnings for the fourth quarter. Revenues were up 17 percent to $6.7 billion, while non-GAAP earnings increased 35 percent to $2.2 billion, or 6.79 per share. That is well above the analyst consensus of $6.50 a share. The slides are above.

Revenues for the full year ended up being $23.65 billion, up from $21.8 billion in 2008. Net income for 2009 was $6.5 billion.

Google’s revenue in the quarter was broken down 66 percent (or $4.4 billion) from its own sites and 31 percent (or $2 billion) from AdSense revenues across its advertising network. The other 3 percent came from licensing and other businesses. While the Google’s ad revenue on its own sites increased 16 percent, AdSense revenues grew an even faster 21 percent.

Paid clicks on ads were up 13 percent annually and up 9 percent from the third quarter of 2009. The average cost per click was up 5 percent annually, and 2 percent sequentially.

The company ended the year with $24.5 billion in cash and 19,835 full-time employees (170 more people than on September 30, 2009).

My notes from the live conference call are below.

CEO Eric Schmidt:

Overall very pleased with performance. We are back in business full blast. Investing heavily. Excited to continue to reinvent search. Doing acquisitions at pace of one a month.

Jonathan Rosensweig:

Our strategy in 2009 was to double down on our core, search, advertising and display. Also wanted to invest in Chrome, [Android, other new products]. Internally we called this the “More wood behind fewer arrows” approach.

AdWords launched a new front end

Android started with 1 device, now at 20
Doubelclick now fully integrated, display ramping nicely.

Launched Chrome OS.

We saw a lot of businesses go to the cloud

YouTube is monetizing well

Most importantly, search is performing well. Also launched music search and realtime search.

In 20101 we will be investing. We will pour a lot into search. Key is time to result. How fast can we get a user to result. Also more types of ads.

Beyond search and search ads, a few major trends transforming the Internet.

The first is social. When you say social, people think of social networks, but all of the Web is becoming social. You will trust a restaurant review more from a friend, so maybe it should have a higher ranking, but only for you.

Also people researching shopping online more.

Personalizations, mobile. We think there is the potential to make the mobile Web better than the PC Web.

Organization are moving to the cloud not only because it is cheaper but because it is a better way to do things.


Q: Sequential growth is similar to 2007. Are overall search spending trends back to normal? Also materiality of mobile?

A: We won’t comment on mobile. In general, you see throughout second half of 2009 a recovery. Finance is not as strong as other areas. Make progress with all the other verticals.

Q: Could you rank key monetization changes you made in 4Q. How do you think about mobile, will it drive P&L>

Jonathan: Quality Qs. Q4 tends to be a modest quarter for us. We try to freeze the launches after Thanksgiving to give advertisers stability during the holidays. RPM was stable. All Advertisers are on AdWords 3, makes them more effective in their biding efforts.

the main thing in mobile is advertisers are getting better figuring out what works on mobile, including a phone number or address is increasing clickthrough rates.

A: two pronged strategy on mobile. Driving product innovations, Goggles, Voice navigations, that drives monetization.

Schmidt: the China stuff has been covered. to review, we reported there was a cyber attack on Google, still under investigation, we made technical changes to prevent a future attack, also found monitoring of civil rights, third, Google will no longer be willing to apply the censorship rules in China. Our business is not changed yet. We will change that soon. {i.e. still censored results for now]

Q: you mentioned 5X increase in mobile search. What kind of revenue per search are you getting?

Jonathan: The new formats, the targeting tools and the reporting we are giving to advertisers is making a difference. Click to call, letting advertiser target specific high-end devices or carriers, so seeing improved monetization across mobile.

Q: How are the new ad formats doing?

A: Ad formats we launched in Q4 have been very successful.

Jonathan: try typing Sears into Google. You’ll see site links, Deal of the day, Tools section, better experience for both the advertiser and the user.

Q: Updated metrics o how much of YouTube is being monetized. before you said it had tripled.

A: YouTube has gone from a nice to have to an essential part of a media campaign. Homepage was nearly sold out in Q4, running ads in 20 countries worldwide, to give you a perspective on how successful YouTube has been.

Q: Ad spending trends by advertising size?

A: Larger advertisers continue to increase spending, retailers was strong during the holidays. Continue to work with smaller advertisers, a seasonal issue where we see larger advertisers outperform smaller ones.

Q: Rank your no-search businesses in terms of revenue and growth potential.

A: Depends on whether you look at absolute growth or relative. Smaller ones are growing faster. We have said is that our next huge business is display. If I were to talk about absolute numbers that would be No. 1. But smaller ones growing faster. No. 1 there is mobile. We have a lot of evidence that people are moving towards data-friendly mobile devices quite quickly. 2010 will be a year of significant mobile revenue growth.

In terms of Apple, as a former board member I have a special place in my heart. We have some things coming up with them, but also compete.

Q: Do you need to diversify away from advertising revenues. Mobile strategy is perplexing, network partners and Nexus One.

Schmidt: We are not immune to global economic trends. I think we fared better than others. We are trying to use GPS data to target by location and have a lot of initiatives, but the biggest area will be in display. We have quiet a healthy enterprise business which will grow rapidly over the next few years. We will be one of the leaders there.

I think there has been a lot of confusion about that. What the Nexus One is rally about is a new way to purchase a phone. Nexus One is the first of a long line. You will see other manufacturers. you can buy and provision a phone.

Q: Is Bing having an effect on cost per click? Also taxes?

A: We think our CPCs generally are not impacted by what other competitors do. They are set by an auction model between customers.

Q: what will Nexus One Margin be?

A: we don’t track margins for businesses. [measure success in other ways, the margin will be what it will be]

Q: TAC issues, how big is display today?

A: TAC trending down due to mix issues. In the case of display, the few facts we shared already are worth mentioning. It is a $17B industry. TV industry is $117B industry, shifting to the Internet, So no doubt a huge pie to go after. We don’t comment on specifics of our market share, but a big focus for us with a lot of runway.

Q: We are seeing from third party data that iPhone is 50% of mobile traffic is that what you are seeing? Can you give us sense of percentage of advertisers

Schmidt: We are not going to speculate market share of Apple’s mobile products. As far as I can tell our relationship with Apple is very stable.

Q: Ad shifts between search and display?

Schmidt: My sense is they don’t shift, they add. We do it better than anyone else and continue to win all of those deals.