MOUNTAIN VIEW, Calif. – Google Inc. (NASDAQ:GOOG) announced financial results for the quarter and the fiscal year ended December 31, 2009.
“Google had a strong fourth quarter, with 17% year over year revenue growth,” said Eric Schmidt, CEO of Google. “Given that the global economy is still in the early days of recovery, this was an extraordinary end to the year. Our performance in 2009 underscored the strength of our management team, the resilience of our business model and the pace of innovation within our product and engineering teams, which continued unabated throughout the downturn. As we enter 2010, we remain hugely optimistic about the internet and are continuing to invest heavily in technological innovation for the benefit not only of our users and customers, but also the wider web.”
Q4 Financial Summary
Google reported revenues of $6.67 billion for the quarter ended December 31, 2009, an increase of 17% compared to the fourth quarter of 2008. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the fourth quarter of 2009, TAC totaled $1.72 billion, or 27% of advertising revenues.
Google reports operating income, operating margin, net income, and earnings per share (EPS) on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures in the accompanying financial tables.
GAAP operating income in the fourth quarter of 2009 was $2.48 billion, or 37% of revenues. This compares to GAAP operating income of $1.86 billion, or 33% of revenues, in the fourth quarter of 2008. Non-GAAP operating income in the fourth quarter of 2009 was $2.76 billion, or 41% of revenues. This compares to non-GAAP operating income of $2.15 billion, or 38% of revenues, in the fourth quarter of 2008.
GAAP net income in the fourth quarter of 2009 was $1.97 billion, compared to $382 million in the fourth quarter of 2008. Non-GAAP net income in the fourth quarter of 2009 was $2.19 billion, compared to $1.62 billion in the fourth quarter of 2008.
GAAP EPS in the fourth quarter of 2009 was $6.13 on 322 million diluted shares outstanding, compared to $1.21 in the fourth quarter of 2008 on 317 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2009 was $6.79, compared to $5.10 in the fourth quarter of 2008.
Non-GAAP operating income and non-GAAP operating margin exclude the expenses related to stock-based compensation (SBC). Non-GAAP net income and non-GAAP EPS exclude the expenses related to SBC and, in the fourth quarter of 2008, the non-cash impairment charges primarily related to our investments in AOL and Clearwire, and the related tax benefits. In the fourth quarter of 2009, the charge related to SBC was $276 million, compared to $286 million in the fourth quarter of 2008. The tax benefit related to SBC was $62 million in the fourth quarter of 2009 and $65 million in the fourth quarter of 2008. In the fourth quarter of 2008, we recognized $1.09 billion in asset impairment charges related primarily to our investments in AOL and Clearwire. The tax benefit related to the impairment charges was $82 million in the fourth quarter of 2008. Reconciliations of non-GAAP measures to GAAP operating income, operating margin, net income, and EPS are included at the end of this release.
Q4 Financial Highlights
Revenues – Google reported revenues of $6.67 billion in the fourth quarter of 2009, representing a 17% increase over fourth quarter 2008 revenues of $5.70 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting TAC.
Google Sites Revenues – Google-owned sites generated revenues of $4.42 billion, or 66% of total revenues, in the fourth quarter of 2009. This represents a 16% increase over fourth quarter 2008 revenues of $3.81 billion.
Google Network Revenues – Google’s partner sites generated revenues, through AdSense programs, of $2.04 billion, or 31% of total revenues, in the fourth quarter of 2009. This represents a 21% increase from fourth quarter 2008 network revenues of $1.69 billion.
International Revenues – Revenues from outside of the United States totaled $3.52 billion, representing 53% of total revenues in the fourth quarter of 2009, compared to 53% in the third quarter of 2009 and 50% in the fourth quarter of 2008. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2009 through the fourth quarter of 2009, our revenues in the fourth quarter of 2009 would have been $112 million lower. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the fourth quarter of 2008 through the fourth quarter of 2009, our revenues in the fourth quarter of 2009 would have been $196 million lower.
Revenues from the United Kingdom totaled $772 million, representing 12% of revenues in the fourth quarter of 2009, compared to 12% in the fourth quarter of 2008.
In the fourth quarter of 2009, we recognized a benefit of $8 million to revenues through our foreign exchange risk management program, compared to $129 million in the fourth quarter of 2008.
Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 13% over the fourth quarter of 2008 and increased approximately 9% over the third quarter of 2009.
Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 5% over the fourth quarter of 2008 and increased approximately 2% over the third quarter of 2009.
TAC – Traffic Acquisition Costs, the portion of revenues shared with Google’s partners, increased to $1.72 billion in the fourth quarter of 2009, compared to TAC of $1.48 billion in the fourth quarter of 2008. TAC as a percentage of advertising revenues was 27% in the fourth quarter of 2009, compared to 27% in the fourth quarter of 2008.
The majority of TAC is related to amounts ultimately paid to our AdSense partners, which totaled $1.47 billion in the fourth quarter of 2009. TAC also includes amounts ultimately paid to certain distribution partners and others who direct traffic to our website, which totaled $250 million in the fourth quarter of 2009.
Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs as well as credit card processing charges, decreased to $688 million, or 10% of revenues, in the fourth quarter of 2009, compared to $707 million, or 12% of revenues, in the fourth quarter of 2008.
Operating Expenses – Operating expenses, other than cost of revenues, were $1.78 billion in the fourth quarter of 2009, or 27% of revenues, compared to $1.65 billion in the fourth quarter of 2008, or 29% of revenues.
Stock-Based Compensation (SBC) – In the fourth quarter of 2009, the total charge related to SBC was $276 million, compared to $286 million in the fourth quarter of 2008.
We currently estimate SBC charges for grants to employees prior to January 1, 2010 to be approximately $1.2 billion for 2010. This estimate does not include expenses to be recognized related to employee stock awards that are granted after December 31, 2009 or non-employee stock awards that have been or may be granted.
Operating Income – GAAP operating income in the fourth quarter of 2009 was $2.48 billion, or 37% of revenues. This compares to GAAP operating income of $1.86 billion, or 33% of revenues, in the fourth quarter of 2008. Non-GAAP operating income in the fourth quarter of 2009 was $2.76 billion, or 41% of revenues. This compares to non-GAAP operating income of $2.15 billion, or 38% of revenues, in the fourth quarter of 2008.
Interest Income and Other, Net – Interest income and other, net increased to $88 million in the fourth quarter of 2009, compared to $70 million in the fourth quarter of 2008.
Income Taxes – Our effective tax rate was 23% for the fourth quarter of 2009.
Net Income – GAAP net income in the fourth quarter of 2009 was $1.97 billion, compared to $382 million in the fourth quarter of 2008. Non-GAAP net income was $2.19 billion in the fourth quarter of 2009, compared to $1.62 billion in the fourth quarter of 2008. GAAP EPS in the fourth quarter of 2009 was $6.13 on 322 million diluted shares outstanding, compared to $1.21 in the fourth quarter of 2008 on 317 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2009 was $6.79, compared to $5.10 in the fourth quarter of 2008.
Cash Flow and Capital Expenditures – Net cash provided by operating activities in the fourth quarter of 2009 totaled $2.73 billion, compared to $2.12 billion in the fourth quarter of 2008. In the fourth quarter of 2009, capital expenditures were $221 million, the majority of which was related to IT infrastructure investments, including data centers, servers, and networking equipment. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the fourth quarter of 2009, free cash flow was $2.51 billion.
We expect to continue to make significant capital expenditures.
A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release.
Cash – As of December 31, 2009, cash, cash equivalents, and short-term marketable securities were $24.5 billion.
On a worldwide basis, Google employed 19,835 full-time employees as of December 31, 2009, up from 19,665 full-time employees as of September 30, 2009.
WEBCAST AND CONFERENCE CALL INFORMATION
A live audio webcast of Google’s fourth quarter 2009 earnings release call will be available at http://investor.google.com/webcast.html. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, the financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available on that site.
Following the earnings conference call, Google will host an additional question-and-answer session to provide an opportunity for financial analysts to ask more detailed product and financial questions. This follow-up call will begin today at 3:00 PM (PT) / 6:00 PM (ET) and will also be webcast and available at http://investor.google.com/webcast.html.
