GOOG's Q3 Conference Call: Q&A Highlights
GOOG Hot Sheet
Revenue Growth %: +24.5%Financial Fact:
Net income: 2.89B
Today's EPS Names:
VSNT, CIM, KH, More
Google (NASDAQ: GOOG) reports Q3 EPS of $5.89, ex-items, versus the analyst estimate of $5.40. Revenue for the quarter was $4.38 billion, which compares to the estimate of $4.23 billion.
Highlights From GOOG's Q3 Conference Call:
(Q&A) As the dollar has weakened, how are you thinking about your hedging program? Will you scale it down going forward? Was it declining quarter-over-quarter cost of hedging in Q3 due to less volatility or less exposure? (A)Let me answer in kind of two, three different ways. First is, clearly the less -- there was less volatility in Q3. And we had taken, you will remember in Q2, because there was so much more volatility in Q1 and Q2 we're taking a lot more because of FAS 133 of these hedging costs through the P&L at that time and therefore less volatile in Q3, the combination of less volatility and already taken big write-downs created less expenses for the quarter itself. So that's one piece.Going forward, right if -- international revenue continues to grow, I mean it will create more exposure for us, and in that sense it will require more attention on the hedging side. But that's how they think about the second
part of your question. In the question of are we scaling it back? We scale it back, clearly not in the sense that when you look at all the benefits we gained last year from this program, it is seen as insurance. It's managed as insurance, and therefore, there's no plan on scaling it. Having said that, there is a plan for review it on a constant basis and formally annually as we build our plan for the board and we go back. If there is areas where we can actually be smarter in terms of more deductibles, if you have less volatility or like there is a science to this, right and we are running an optimum, it's not a blind exercise. It's running an optimum curve or its actually a specific point where we're trying to manage to and you try to minimize the cost obviously for the maximum benefits. And that's how we're thinking about and that's what we'll manage going forward. And then in general about the dollar weakening, I think that there may be, for anybody who has a perception that the dollar is going to continue to weaken over the coming two, three, four years, if you made that case, then you'd say, well, you don't need your hedging program. And that's the danger that every hedging program falls into which is people will say why are you investing this much this quarter into a hedging program that has no benefit
because I know the dollar is going to weaken and then the next thing you know we have a crisis like we had last year and then they say, hey, where is your hedging program? So, it is insurance, its part of doing business in a business like ours, and I'll refer you back to the very first two points I've made which is its about finding the optimal point, making sure that we're kind of finding the best economic value for these hedging programs and then it will be driven a lot by the market itself and the exporters we have. But there is -- we're putting a lot of science into this obviously.
Could you comment on the level of monetization changes to YouTube and future thoughts on aligning the strategic goals for video to over the top distribution? (A) I guess I don't know exactly what over the top distribution means but I certainly know a lot about what's going on from a monetization perspective on YoutTube. So let me try to focus on that. I think we've said before we're monetizing more than one billion video views every week, and that the monetizable views have increased more than three times in the last year. So the model there is making partners money and the success of content idea I think over the course of the last several months has been a big part of that. Usage and traffic continues to be very, very strong, and we're now doing a good job of monetizing across the four activities that Chad tends to refer to on the site. The homepage as are going great. We've sold out the U.S. YouTube. A homepage over a significant period of time. We're making great progress on the search videos. If you look at the promoted videos on the right hand side, if you put in a query for something like soccer, the watch videos with the in-stream ads are going well. And we're getting some interesting videos uploaded and better engagement with the user community, if you take a look at the Quaker Oats contest that's running now on awakening your senses challenge; we're seeing a lot of interest there. So I think across the board things are going very, very well from a monetization perspective with YouTube.
With the strong gains you're seeing in the display ad business, can you discuss whether these gains are a function of share gains and online display ads or do these dollars represent new dollars being allocated to the internet from offline? (A)And we certainly talked about how happy we are with the growth of the display business. We don't typically comment on our market share. I do think display has huge potential. I think we're - our goal is to obviously help the overall pie grow, and I think we've succeeded because we're offering great performance to advertisers, and we're going to continue to grow revenue for our publishers. I think significant portions of dollars are coming offline to online.
Is search on mobile devices cannibalistic to PC search or is it additive? (A)I think that the most exciting thing about mobile is that even though there maybe, the margin some stuff that's kind of overlap. It's essentially a new space. And because it's a new space, and there's been a lot of research done on this. And there was one for example, there was one we search today, I read not long ago whereby the end of 2011 or at the end of 2012 the research talks about smartphones surpassing the global PC in sales.
So you end up in a world where, I guess, it's an and world rather than an or world, where you live very differently with your mobile device and the PC, but I mean, Jonathan maybe you'd like to add comment on. (A) Well, I think, that the intuitive way to think about it is really that it's not - that it's largely non-cannibalistic, because think about it, having search with you at all times, basically opens up new opportunities no mater where you are at the time of day. So certainly a search that somebody was able to do, because they had their mobile phone with them when they are away from their desktop is unlikely to be cannibalistic. The other thing that we can actually see in the data is the complimentary aspect of the usage patterns across time of day and day of week. You see multiple usage increase in the middle of the day at lunch. You see it increase after work, you see it increase over the weekend, so I think some of those dynamics suggest that it's largely not cannibalistic but we need to continue to gather data there to better understand it.
Please provide more color on your hiring math, what functional areas and geographies will be most impacted? (A) Again if use the -- rather than to give you a specific answer, I mean, I think that if you -- if I was an analyst, kind of thinking through our own models, right, the next billion dollar of revenue doesn't require linear hiring and finance. So it really is about innovation. So I think that you can think through our organization and think through, if be really want to focus in the areas of engineering and the areas of sales, and support, then it tells you, you know, really where we're going to focus our hiring. And then obviously there's a number of other areas that we'll continue to grow just because we have - with more businesses you have complexity of more businesses, so you do need the more lawyers, you need - just more of that. But the real bulk of it is really focused on the engineering community and sales and support community that really drive this eco-systems, so that's how we're thinking about it.
When can we expect to see the CPA model more broadly deployed on google.com? (A)I guess I'm going start again, because I was speaking to myself on mute. So the conversion optimizer product is actually a CPA pricing model, and we're using it pretty broadly. I think we announced this quarter that it's managing over a billion in annual spend. And it's driving pretty good results for the advertisers. They use it to get more conversion and manage it to a lower CPA. We're running some experiments that I think some blogs may have picked up on CPA based pricing models, were some product focused advertisement. And these are generally running on the Google affiliate network on Google.com, but I can't comment much on, on how that is going until it launches a little bit more broadly.
Highlights From GOOG's Q3 Conference Call:
(Q&A) As the dollar has weakened, how are you thinking about your hedging program? Will you scale it down going forward? Was it declining quarter-over-quarter cost of hedging in Q3 due to less volatility or less exposure? (A)Let me answer in kind of two, three different ways. First is, clearly the less -- there was less volatility in Q3. And we had taken, you will remember in Q2, because there was so much more volatility in Q1 and Q2 we're taking a lot more because of FAS 133 of these hedging costs through the P&L at that time and therefore less volatile in Q3, the combination of less volatility and already taken big write-downs created less expenses for the quarter itself. So that's one piece.Going forward, right if -- international revenue continues to grow, I mean it will create more exposure for us, and in that sense it will require more attention on the hedging side. But that's how they think about the second
part of your question. In the question of are we scaling it back? We scale it back, clearly not in the sense that when you look at all the benefits we gained last year from this program, it is seen as insurance. It's managed as insurance, and therefore, there's no plan on scaling it. Having said that, there is a plan for review it on a constant basis and formally annually as we build our plan for the board and we go back. If there is areas where we can actually be smarter in terms of more deductibles, if you have less volatility or like there is a science to this, right and we are running an optimum, it's not a blind exercise. It's running an optimum curve or its actually a specific point where we're trying to manage to and you try to minimize the cost obviously for the maximum benefits. And that's how we're thinking about and that's what we'll manage going forward. And then in general about the dollar weakening, I think that there may be, for anybody who has a perception that the dollar is going to continue to weaken over the coming two, three, four years, if you made that case, then you'd say, well, you don't need your hedging program. And that's the danger that every hedging program falls into which is people will say why are you investing this much this quarter into a hedging program that has no benefit
because I know the dollar is going to weaken and then the next thing you know we have a crisis like we had last year and then they say, hey, where is your hedging program? So, it is insurance, its part of doing business in a business like ours, and I'll refer you back to the very first two points I've made which is its about finding the optimal point, making sure that we're kind of finding the best economic value for these hedging programs and then it will be driven a lot by the market itself and the exporters we have. But there is -- we're putting a lot of science into this obviously.
Could you comment on the level of monetization changes to YouTube and future thoughts on aligning the strategic goals for video to over the top distribution? (A) I guess I don't know exactly what over the top distribution means but I certainly know a lot about what's going on from a monetization perspective on YoutTube. So let me try to focus on that. I think we've said before we're monetizing more than one billion video views every week, and that the monetizable views have increased more than three times in the last year. So the model there is making partners money and the success of content idea I think over the course of the last several months has been a big part of that. Usage and traffic continues to be very, very strong, and we're now doing a good job of monetizing across the four activities that Chad tends to refer to on the site. The homepage as are going great. We've sold out the U.S. YouTube. A homepage over a significant period of time. We're making great progress on the search videos. If you look at the promoted videos on the right hand side, if you put in a query for something like soccer, the watch videos with the in-stream ads are going well. And we're getting some interesting videos uploaded and better engagement with the user community, if you take a look at the Quaker Oats contest that's running now on awakening your senses challenge; we're seeing a lot of interest there. So I think across the board things are going very, very well from a monetization perspective with YouTube.
With the strong gains you're seeing in the display ad business, can you discuss whether these gains are a function of share gains and online display ads or do these dollars represent new dollars being allocated to the internet from offline? (A)And we certainly talked about how happy we are with the growth of the display business. We don't typically comment on our market share. I do think display has huge potential. I think we're - our goal is to obviously help the overall pie grow, and I think we've succeeded because we're offering great performance to advertisers, and we're going to continue to grow revenue for our publishers. I think significant portions of dollars are coming offline to online.
Is search on mobile devices cannibalistic to PC search or is it additive? (A)I think that the most exciting thing about mobile is that even though there maybe, the margin some stuff that's kind of overlap. It's essentially a new space. And because it's a new space, and there's been a lot of research done on this. And there was one for example, there was one we search today, I read not long ago whereby the end of 2011 or at the end of 2012 the research talks about smartphones surpassing the global PC in sales.
So you end up in a world where, I guess, it's an and world rather than an or world, where you live very differently with your mobile device and the PC, but I mean, Jonathan maybe you'd like to add comment on. (A) Well, I think, that the intuitive way to think about it is really that it's not - that it's largely non-cannibalistic, because think about it, having search with you at all times, basically opens up new opportunities no mater where you are at the time of day. So certainly a search that somebody was able to do, because they had their mobile phone with them when they are away from their desktop is unlikely to be cannibalistic. The other thing that we can actually see in the data is the complimentary aspect of the usage patterns across time of day and day of week. You see multiple usage increase in the middle of the day at lunch. You see it increase after work, you see it increase over the weekend, so I think some of those dynamics suggest that it's largely not cannibalistic but we need to continue to gather data there to better understand it.
Please provide more color on your hiring math, what functional areas and geographies will be most impacted? (A) Again if use the -- rather than to give you a specific answer, I mean, I think that if you -- if I was an analyst, kind of thinking through our own models, right, the next billion dollar of revenue doesn't require linear hiring and finance. So it really is about innovation. So I think that you can think through our organization and think through, if be really want to focus in the areas of engineering and the areas of sales, and support, then it tells you, you know, really where we're going to focus our hiring. And then obviously there's a number of other areas that we'll continue to grow just because we have - with more businesses you have complexity of more businesses, so you do need the more lawyers, you need - just more of that. But the real bulk of it is really focused on the engineering community and sales and support community that really drive this eco-systems, so that's how we're thinking about it.
When can we expect to see the CPA model more broadly deployed on google.com? (A)I guess I'm going start again, because I was speaking to myself on mute. So the conversion optimizer product is actually a CPA pricing model, and we're using it pretty broadly. I think we announced this quarter that it's managing over a billion in annual spend. And it's driving pretty good results for the advertisers. They use it to get more conversion and manage it to a lower CPA. We're running some experiments that I think some blogs may have picked up on CPA based pricing models, were some product focused advertisement. And these are generally running on the Google affiliate network on Google.com, but I can't comment much on, on how that is going until it launches a little bit more broadly.
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