Highlights From GOOG's Q3 Conference Call: Continued Momentum Across The Board

Google, Inc. (NASDAQ: GOOG) reported Q3 EPS of $9.72, $0.98 better than the analyst estimate of $8.74. Revenue for the quarter came in at $7.51 billion versus the consensus estimate of $7.19 billion. Shares are currently trading up 6.02% today.

Highlights From GOOG's Q3 Conference Call:

• (Lawrence E. Page) Revenue was up 33% year-on-year and our quarterly revenue was just short of $10 billion, not bad for a 13-year-old.
  
• I'm also incredibly excited about the progress we've made on the product side. Ever since taking over as CEO, I have focused much of my energy on increasing Google's velocity and execution, and we're beginning to see results. Look at Google+. We had 100 features launched in 90 days.
  
• Over 3.4 billion photos have already been uploaded and Google+, but it's still incredibly early days for Google+ because our goal is actually far bigger than the individual feature launches themselves.
  
• Chrome. Usage is going through the roof. We have now had over 200 million users and still growing fast. Turns out that people really care about getting to the web quickly and securely and having a whole ecosystem of apps at their fingertips.
  
• Super pleased with Google Maps. It's a favorite with our users, especially on mobile devices. In August we launched in 40 new countries taking our total to 130 countries
  
• The growth of Android is mind-boggling, too. Over 190 million devices have now been activated globally. I'm super excited about the soon-to-be released new version of Android called Ice Cream Sandwich. That's right, Ice Cream Sandwich. You won't believe what we've managed to get done in this release. We're also seeing a huge positive revenue impact from mobile, which has grown 2.5x in the last 12 months to a run rate of over $2.5 billion.
  
• So our goal is to hire the best people at every level and keep them at Google. The hiring at Google: the hiring has to be manageable if we are to balance our short and long-term needs. You may have noticed quite substantial hiring this quarter driven in part by a lot of university graduates. Despite the seasonal affect the total number people we hired was about the same as last quarter. Our attrition remains low, which is great though obviously it contributes to our overall head count.
  
• (Patrick Pichette) Our gross revenue grew 33% year-over-year to $9.7 billion and 8% quarter-over-quarter. Note that while some currency fluctuation boosted our revenue again this quarter little bit even in constant FX terms our growth rates remained very strong.
  
• Our Google website revenue was up 39% year-over-year to $6.7 billion and 8% quarter-over-quarter with strength across most major geographies and verticals in fact. Our Google network revenue was up 18% year-over-year to $2.6 billion and 4% quarter-over-quarter.
  
• Our other revenue was up also 52% year-over-year to $385 million, and that was up 24% quarter-over-quarter. Our global aggregate paid click growth was very strong, up 28% year-over-year and up 13% quarter-over-quarter.
  
• Our revenue from the U.S. was up 26% year-over-year to $4.4 billion.
  
• Our non-U.S. revenue accounted for 55% of our total revenue or $5.3 billion, up 41% year-over-year, which includes a modest $1 million of benefits from our hedging program and this is, compared to $89 million benefit in Q3 of last year.
  
• The U.K. was up 25% to $1 billion and year-over-year growth in fixed FX still is pretty healthy and would've been 20% or is 20%.
  
• Let me now turn to expenses. Our traffic acquisition growth and costs were $2.2 billion, or 23.7% of total advertising revenue, and our other cost of revenue was $1.1 billion, which excludes stock-based compensation of $72 million. Finally, operating expenses, also excluding SBC, totaled $2.8 billion, and SBC itself totaled $499 million in Q3.
  
• Our effective tax rate was 19% in Q3, flat with Q2, and the lower tax rate is driven by a mix of earnings between domestic and international subsidiaries. Now let me turn to cash management. Other income and expense was $302 million for Q3.
  
• Operating cash flow was very strong at $4 billion. Our CapEx for the quarter, down from last quarter to $680 million, and the majority of the CapEx once again in Q2 was related to facilities and production equipment.
  
• (Nikesh Arora) Our sales, customer support, marketing and partnership activities drove $9.7 billion in revenue this quarter. First, let me talk about results for our advertising products, then our performance by region, and finally, some highlights from our amazing marketing team.
  
• Moving onto Display, growth this quarter was robust, with products like YouTube and Google Display Network, we're giving advertisers more options to engage with their customers online. What's interesting is we've seen a marked increas in our average spending from 2009. 2009, our top 20 display deals averaged approximately $2 million each. Now, our top deals are over seven times larger, averaging approximately $15 million each.
  
• Our revenue growth continues to accelerate even in mobile, driven primarily by mobile search. This growth obviously is driven both by the underlying expansion of Android devices and tablets, as well as stellar performance by our sales teams who are working closely with our customers to help them craft compelling mobile advertising solutions.
  
• Moving our sights to enterprise, we see continued driving acceleration on our enterprise business. More companies are fundamentally going Google. Our apps products continue strong growth with recent app wins to people like Goodyear (NYSE: GT) and SoftBank of Japan. We're particularly excited obviously also that we just deployed apps to 450,000 teachers in Morocco.
  
• In much of Western Europe we have seen some softness in ad sales. However, in markets like Spain we are seeing that our sales execution efforts are continuing to keep our revenues stable and in some cases accelerate the revenue growth. Of course, across Asia and our key emerging markets we grew much faster. Japan's post-earthquake recovery has continued, and it's been driven primarily by large advertisers. We also see revenue growth in Australia, India, Brazil. They all are strong, and they continue on a strong growth trajectory.
  
• (Susan Wojcicki) Search. We had another great quarter for search quality with over 100 launches. We improved our Preview feature, so that when you hover your mouse over a search result, a large thumbnail of the site appears on the right. We also expanded the Sitelinks feature to include more links, with full snippets for each link.
  
• We are pleased with the paid click loads, which increased this quarter while keeping ad quality high. After a number of quarters of strong CPC growth, we continue to see year-on-year CPC growth.
  
• We also made a number of improvements to our core-advertising product. Starting with the local and the small-business market, we launched AdWords Express in the U.S. and started product trials in the U.K, Germany and France. There are a lot of businesses who want to advertise online, and they haven't done so because they're too busy running their business. AdWords Express makes it possible for these businesses to start running an ad campaign in just a few minutes.
  
• On the other end of the spectrum are large businesses and agencies. We made a number of significant improvements to Google Analytics this quarter, since we know that when site owners have more insights into site traffic and better information about how to optimize their campaigns, they tend to increase their spend.
  
• We also added real-time reporting to Google Analytics so that marketers and publishers can see what is happening on their site right now. This is especially useful to measure the immediate impact of social media.
  
• The momentum around Google+ is starting to apply to our ad product as well. Users can now Plus One display ads on the Google Display Network and have had Plus One buttons on search ads and results since the end of Q1. Although it's still pretty early our data shows us that ads and results that are socially annotated are more relevant for users.
  
• And finally, we shipped Google Wallet to Sprint Nexus S 4G phones and started working with Visa, American Express and Discover as partners so their cards could be added to future versions of the apps. This morning I bought my latte using my phone as a Wallet. I'm looking forward to leaving my traditional wallet at home in the future.
  
• (Q&A) You noted the proliferation of newer richer ad formats like product listing ads; can you help us understand the impact on your financial model? Are they more or less profitable to you? And then secondly, on your comments on Western European ad sales softness, is the softness across all formats or are mobile and display holding up generally better? (A) Yeah, I think we are constantly improving search, as well as improving our ad format. So, if you look at our revenues, we will always be trying to drive new ad formats to our customers because we believe they provide better information both to the user, as well as they are good for the advertiser. Effectively, I'm not going to comment on the profitability of the ad formats except the fact that they're great for users and advertisers and good ads are delivered, and if users click on them more, obviously, it will have an impact on the financial. I will let you figure that one out. In terms of my comments on Western European ad sales it was more of a relative comment vis--vis prior quarters as opposed to an absolute comment about softness. Generally, we're seeing the economic impact in some of those markets might flow through to some of these things, but it's just mildly soft. We're generally comfortable, generally queries are growing up; people are happier with mobile; people are happier in display. We're seeing search query growth. So, it's a bit of a mix across-the-board, but this is not - this is slight softness, not weakness.
  
• On that paid click growth that's a real sharp acceleration yet the organic revenue growth didn't sharply accelerate. So, could you just provide some color on that? Is that just market shift towards mobile searches? What's driving that? And secondly, what's behind that other revenue that really spiked as well? Think you very much. (A) So, there were certainly a number of factors at play in terms of the CPC and the paid click growth. But the most important thing that I want to emphasize is that it's really important to look at these two factors together since they often move in reverse from one another. The other thing is there certainly was a mix factor where we do see changes in our mix, and that sometimes does have impact on how our CPCs are - how the aggregate winds up being affected.

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Benchmark on Take-Two's (TTWO) GTV 6 Release: 'we anticipate that the game will not be released within the fiscal year and expect it to launch in fiscal 2026 instead'
• Acme United (ACU) Misses Q1 EPS by 20c
• Lakeland Bancorp (LBAI) Tops Q1 EPS by 1c