1/23/09

Tech Earnings This Week: Google Beat As Expected

After the outstanding earnings report from IBM (IBM-NYSE) earlier this week, I suggested that Google (GOOG-Q) would also beat analyst expectations. It did.

Revenues of $5.70 billion were 18% higher than the same quarter of 2007, and a 3% sequential improvement over Q3 2008. Adjusted earnings for the quarter were reported at $5.10 per share versus expectations of $4.95.

Looking deeper into the performance metrics reported, indeed Google seems to be benefiting from the flight to safety by marketing budgets, along with its increasingly international footprint.
Aggregate paid clicks increased 18% over Q4 2007, and 10% sequentially. Revenue from Google owned sites, essentially search, increased by 22% over Q4 2007. AdSense revenues grew by 4%. Revenues from international sources increased as percentage of total sales to 50% from 48%.
Google management chose to take some impairment charges in the quarter, which impacted negatively on reported earnings. However, operationally, it could be inferred that Google performed ahead of expectations. As I expected.
Investors should marvel at the margins of this Company which was reported at 33% in the 4th quarter, which is a 10% improvement sequentially over Q3. It should be interesting to see what happens during Q1 2009, which is typically the weakest quarter for media spending. Notwithstanding, Google should continue to benefit from the "flight to safety" for at least two more quarters.
More surprising this week was the strong earnings report from Apple (AAPL-Q). Although iPhone sales were weak as expected, strong performance from the laptop line of business was a big surprise. As a premium priced product in a declining market, one could predict that this business would crater during the quarter, but instead it powered earnings. International sales again helped push iPod performance ahead of forecasts. Essentially, Apple's diversified product base was critical to its surprise performance.
On the other hand, Nokia (NOK-NYSE) showed a deep decline in performance due to weak handset replacement activities worldwide. As I have stated in an earlier post, people find their mobile subscriptions to be essential, but are choosing to hold off on fancier phone upgrades. On top of that, for consumers actually looking for new bling, they are choosing the iPhone over Nokia products in Europe.
Because Research In Motion (RIMM-Q) looks more like Nokia than Apple from a product perspective, there is probably a greater chance than not that RIM could miss analyst expectations when it reports. However, it was reported during the fall of 2007 that shipments of Storm were better than expected. Unlike Nokia, RIM has been launching new devices throughout 2008, which should benefit performance. However, with iPhone being Apple's weakest product line, and Nokia reporting significant declines in sales, it doesn't bode well for RIM's quarter.
Because Yahoo! (YHOO-Q) has a greater exposure to the U.S market than Google, and because it relies more on impression-based display ad revenue than Google, it could report earnings next week that miss expectations. Management instability, and the erosion of brand equity by incessant takeover speculation do not help, either. Marketers probably do not feel as safe allocating budgets to Yahoo! as compared to Google. Social media players like Facebook and MySpace are a direct susbstitutes for Yahoo!'s portal business, and are nipping at the edges of Yahoo!'s traffic while gaining more mindshare with marketers, which also does not help. If the dominant online media player is showing 18% growth in sales in a market where total growth is forecasted to be around 10%, the performance gaps need to occur somewhere.
I do not own any share in the Companies discussed above.

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