Google revenues and cash flow should keep investors smiling
Google Inc. (NASDAQ: GOOGL) reported second quarter 2014 results last week, with the search engine behemoth reporting adjusted diluted earnings per share (EPS) of $6.08 on revenues of $15.96 bln including traffic acquisition costs (TAC). In the year-ago quarter Google posted EPS of $4.96 on revenues of $13.11 bln.
Analysts were estimating EPS of $6.24 on revenues of $15.62 bln.
This marks the first post-split and dualclass earnings report. It is hard to know if the changes will have been entirely accounted for in the analysts estimates because it often happens that analysts do not properly account for reorganisations immediately.
Google also announced that the company’s chief business officer, Nikesh Arora, is leaving to join SoftBank as Vice Chairman and CEO of SoftBank Internet and Media. Omid Kordestani is stepping in to lead the business organisation “for now,” according to the release.
Excluding traffic acquisition costs (TAC) of $3.29 bln, Google’s revenues totaled $12.67 bln for the quarter. The majority of TAC — $2.4 bln — was paid to Google’s network members. Another $893 mln was paid to distribution partners and others who direct traffic to Google’s website.
Paid clicks rose approximately 25% yearover-year and rose about 2% sequentially, while cost-per-click fell approximately 6% yearover-year and was flat sequentially. The paidclick rate fell short of an analysts’ estimate of 33%. The company’s CFO said: Google had a great quarter with revenue up 22% year on year, at $16.0 bln. We are moving forward with great product momentum and are excited to continue providing amazing user experiences, with a view to the long term.
Non-GAAP operating income totaled $5.14 bln, up from $4.21 bln in the same period a year ago. As a percentage of revenue, however, non-GAAP operating income slipped was flat at 32%.
Other cost of revenues rose from 17% of revenues a year ago to 18%, and operating expenses rose from 34% of revenues a year ago to 35% this year.
Given the stock split and the change to a dual-class share structure it’s a bit tricky to assess what’s going on with Google. One thing that is going very right is operating cash flow which rose from $4.7 bln a year ago to $5.63 bln in the second quarter of this year. That’s a gain of 20%.
Shares are trading up about 2.5% at $595.22 in after-hours trading today. The 52week range is $412.91 to $615.05. Thomson Reuters reported a consensus price target of around $660.50 before last Thursday’s earnings report.