Quaterly Earning Analysis – Internet Based Companies [Google]

October sees the filing of 3rd quarter earnings by companies across the globe. Investor confidence and sentiments can be greatly affected by the these reports and hence their importance can’t be underestimated, especially so, in the current scenario, where the world economy is recovering from recession and every move by global corporate giants in under close scrutiny. We shall now try and ourself pick up a few cases from India and abroad and analyse their performance. We shall restrict ourselves to Internet based companies and we will elaborate on jargons also during our first case.

Is Google Evil?
Is Google Evil?

“When in doubt, ask Google” – Captain Obvious

So we shall look no further and start with Google as our first case.  Sourcing our information from http://investor.google.com/, we will start with the first and most prominent measure of companies performance, that is “Revenues” (Please don’t flame me on this). We will be using GAAP( Generally Accepted Accounting Principles) measures to ensure uniformity.

Starting with the quantitative angle, It is hard not to notice that this has been the strongest quarter of Google in recent times. They earned a total revenue of 5945 million USD, with a 7% Y/Y (compared to 3rd quarter last year) and a 8% Q/Q (Compared to last quarter this year) growth.

On the qualitative side, it isn’t surprisingly that over 66.5% of the revenues were straight from Google.com, while about 30.3% coming from their Network and only the remaining minuscule percentage from Licensing fees. This is an important point to consider, since this implies practically all their revenue still come from advertisement and even with a finger in every pie, Google is still primarily a search engine company.

Global presence of Google can easily be estimated by the fact that 53% of their revenue came from International market, this percentage has been on a marginal increase over the years. But if you are a startup targeting revenues from the Internet, take notice of the fact that US with just about 15% of global internet user percentage provides about 47% of the revenues to Google.

Tossing over the coin and moving towards analysing their expenditure pattern. The first point of interest is the noticeable increase (Up from 1453 in last quarter  to 1559 million USD in this quarter)  in absolute cost of TAC (Traffic Acquisition Cost). TAC simply means the amount of money any Internet company spends on making the customer (that is you) to visit their website. But TAC as percentage of Advertisement revenue remained nearly the same (27.1% as compared to 27.2% last quarter) justifying the increase in expenditure.

Other spending patterns practically remained the same as last quarters with 13% of Revenues going for R&D. There has been a strong growth in EPS (Earnings per Share) which is currently at 5.13 up from 4.66 last quarter and 4.06 last year. EPS is one of the most widely used ratios for primitive fundamental analysis while stock picking and a higher EPS suggests good pick.

Overall the last quarter has definitely been a good one for Google and in the words of Eric Schmidt, CEO of Google. “While there is a lot of uncertainty about the pace of economic recovery, we believe the worst of the recession is behind us and now feel confident about investing heavily in our future.”

In the next part we will consider Yahoo, its relative performance to Google and also a couple of India companies.

Facts and figures courtesy  – http://investor.google.com/releases/2009Q3_google_earnings.html

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