Google’s 2006 Money Shot, $10 billion in revenues

31 Comments

If you are a baseball fan, then you have seen Gary Sheffield swing the bat, you get a feeling that if the bat connects with the ball, then the leather is in for some serious hiding. The non scientific description of such an act is called ‘hitting the covers” (or hit the cover) off the ball. Well, that’s exactly how one feels about Google’s fiscal performance for the fourth quarter 2006 and for fiscal 2006.

Google just reported its fourth quarter 2006 sales of $3.2 billion, and net income of $1.03 billion. The sales for fiscal 2006 are $10.6 billion, and profits for the year came in just over $3 billion. By itself, these numbers don’t mean anything. However, if you put them in context of what Wall Street was expecting, then you understand why Google just took a Sheffield type swing.

For starters, the most optimistic estimate for the 2006 revenues was $7.3 billion, and they just blew past that number. They were supposed to do $10 billion-plus in sales in 2007. Google is in a bit of a hurry. For the fourth quarter 2006, the high end revenue expectation were $2.31 billion. This is a moon shot.

Interesting tidbit from the earnings release:

Other cost of revenues, which is comprised primarily of data center operational expenses, as well as credit card processing charges, increased to $307 million, or 10% of revenues, in the fourth quarter of 2006, compared to $223 million, or 8% of revenues, in the third quarter.

More later. Meanwhile enjoy TheStreet.com coverage.

31 Comments

Om Malik

Thanks Dave,

I was trying to link to the consensus revenues number.

I am still checking with folks within the analyst community and see how they report their numbers, just to make sure.

to be fair, 20% increase is pretty darn good. i am still trying to find a similar growth story in any business at this revenue level.

but then when the stock is hovering at $500 a share, 20% isn’t enough.

Dave

Om, your yahoo link didn’t shed any light on the issue. I am attaching a AP story excerpt which confirms the ex-TAC comaprison thesis.

AP
Google 4Q Earnings Nearly Triple
Wednesday January 31, 11:02 pm ET
By Michael Liedtke, AP Business Writer
Google 4Q Earnings Nearly Triple to Sprint Past Analyst Expectations

SAN FRANCISCO (AP) — Google Inc.’s fourth-quarter profit nearly tripled as the online search engine leader once again sprinted past analyst expectations,


The company’s revenue for the period totaled $3.2 billion, a 67 percent increase from $1.92 billion in the prior year.

After subtracting commissions paid to its advertising partners, Google’s fourth-quarter revenue was $2.23 billion. That also exceeded the average analyst estimate of $2.19 billion and represented a 20 percent increase from the third quarter.

The sequential change in Google’s quarterly revenue is closely watched by investors. Besides exceeding analyst expectations, Google’s sequential revenue growth also outpaced the 15 percent increase posted by Yahoo Inc., which operates the Internet’s second-largest advertising network.

Through December, Google held a 47 percent share of the U.S. search market, compared with 28 percent for Yahoo, according to comScore Media Metrix.

For all of 2006, Google earned $3.08 billion, or $9.94 per share, on revenue of $10.6 billion. That compared with net income of $1.47 billion, or $5.02 per share, on revenue of $6.1 billion.

Dave

Thanks for checking. Here is the issue:

The $3.2 bn number you site on the top is the gross revenue figure:
“Google just reported1 its fourth quarter 2006 sales of $3.2 billion..”

where as, the number you quote in the bottom is the number (ex-TAC), which is how most analysts look at it, hence the discrepancy.
“For the fourth quarter 2006, the high end revenue expectation were $2.31 billion. This is a moon shot..”

If you look at Google’s rev-ex TAC ($3.2 bn less TAC of $976 mm) of $2.2 bn which is lower than the high analyst estimates of $2.3 bn.

Still very impressive growth but not the moonshot type story.

Om Malik

Actually, I just checked the data, and everyone seems to be using the TAC-inclusive data in the estimates. Link. The estimates are the same (or close enough) to the numbers on some of the research reports I have.

They grew 19% ex-TAC (Q-o-Q) and 73% (y-over-y for the 4Q)

Om Malik

Dave,

thanks for the post. I am checking into this. the revenue estimates on some of the random reports i get from wall street firms don’t indicate that the revenue numbers are ex-TAC. Regardless, I will check and recheck this and update the post accordingly.

dave

Om,

I find your posts usually insightful, but looks like lately in order to come up with catchy headlines, you are ignoring your journalistic roots and not checking your data for accuracy.

Agree with Keith and Darren comments earlier that the revenue beat was minimal if you compare the right revenue figures!

Oh Well

Wasn’t Yahoo the unstoppable internet juggernaut a decade ago? They ran out of steam and their share price is somewhere under $30 now. Once the growth slows…sell those shares before it does.

Chris

Doesn’t this make GOOG the first internet-based firm to reach eight (8) figures in top-line during a calendar year? Seems like a milestone for the sector worth calling out in recognition of this.

Om Malik

hit the cover… right. i guess, my cricket roots sometime get the better of me at times. ;-) thanks pete.

Pete Kazanjy

Om, it’s “hit the cover” off the ball. There’s only one cover on a baseball.

Spud

Google is going from strength to strength. The competition is falling further and further behind.

Matt

I’ve been to Google’s HQ and it is really not that impressive.

Kind of stuffy if you ask me…

It’s a Wizard of Oz situation.

Darren

Keith is right. You need to correct your reporting ASAP – Wall Street consensus estimates are based on ex-TAC numbers. Google beat but only modestly (esp. compared to previous quarters).

Brian

Sojo – I totally agree with you and that will be the demise of this companies revenue in the long term.

I am amazed that Wall Street does not challenge the numbers more on that revenue yet find it comical that Sarbanes Oxley forces more traditional companies to disclose why they bought to much toner..

Ash

Love the Sheffield Analogy…wow someone needs to break the adsense monopoly…maybe powerset

Keith

Om, you’re comparing apples and oranges. Wall Street estimates are based on Google’s “net revenue,” which is total revenue less TAC payments. Total revenue in Q4 06 was $3,205 million. Net revenue was $2,229 million. Google did beat Wall Street estimates of net revenue, but not by nearly as much as you say.

saran

Google is One in everything
– If Google search doesn’t work, in One second I would use some other search engine
– 150B Market cap, but how much investment is research?
– One ‘small earthquake’ could change everything.
– One revenue product (search) and dozens of One dollar products
– One revenue stream (mainly by ‘click fraud’).
– One can write a ‘ClickWare’ program in One hour
– Licensing and other revenue is One percent
– One-way marketing ie, word of mouth
– Google can enjoy One more year as a spiderman

Kind rgrds
Saran

Om Malik

Visible

I agree, this kind of growth is not sustainable. the law of large numbers eventually kicks in. It is amazing to see that these guys deliver on what they promise, and then some.

I think the Wall Street doesn’t really know how to get correct estimates out of Google, because that’s just how Google is.

Regardless, it be interesting to see how 2007 shapes up.

But when your stock is trading at $400+, even perceived “averageness” is enough to push the stock down.

Chris Dodge

Thanks for the Sheffield reference.

As a Boston Red Sox fan, I always nervously watch Sheffield at the plate. Apparently, to my eyes, the man (a NY Yankee) is just full of rage and just tears at every pitch.

I’ve always thought it would be the worst position in the world to be a 3rd Baseman with Gary Sheffield at the plate. As a right hander, he must send very scary hits to the left side of the diamond.

But – in line – Google’s $1B USD in profit is also pretty scary. I think these guys are going to end up – over time – being more vilified than Microsoft. “Do no evil” – my ass!

Does this mean that Google will end up with “Sheffield-Rage”?

  • Chris
sean

subtract the $976M in traffic acquisition costs and the numbers are much more inline with estimates. Hence, why the stock is actually down in the aftermarket (at least I think).

petabro

I certainly hope the “Boys” are able to keep the accountants/cfo/etc/etc in check
An asian friend humorously remarked today, “Do you think they cookie bookie?”

sojo

what percentage of that ‘profit’ is click fraud? half i bet (and i’m being modest).

Om Malik

they beat expectations, but not like this. man that is too much – revenue upside surprise $3 billion for the entire year. that is scary

Yohay

Don’t they always beat Wall Street’s expectations?
$3 billion profits is a lot!
They’re a giant, and it’s becoming scary…

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