Google, GOOG, reported earnings after the close on January 22, 2013. Investors' first reaction to these financial results was positive as the stock went up over 5% in after hours trading, to about $738.50, when I last looked.
This bullish attitude is reflected by the following quote:
"Business looked really strong, especially from a profitability perspective. They really grew their margins in the core business," said Sameet Sinha, an analyst with B. Riley Caris.
Many investors look at a company's EBIT, or income from operations, to check and evaluate the health of a company. So let's look at what GOOG reported and see how its margins are doing.
One can see that "Income from operations" fell from $3,507 mm a year ago to $3,397 mm, as highlighted in red. But the analyst above spoke of the "core business," so let's look at the figures with and without the money losing Motorola Mobile. The following is taken from GOOG's earnings release:
Operating Income - On a consolidated basis, GAAP operating income in the fourth quarter of 2012 was $3.39 billion, or 24% of revenues. This compares to GAAP operating income of $3.51 billion, or 33% of revenues, in the fourth quarter of 2011. Non-GAAP operating income in the fourth quarter of 2012 was $4.27 billion, or 30% of revenues. This compares to non-GAAP operating income of $4.04 billion, or 38% of revenues, in the fourth quarter of 2011.
• Google Operating Income - GAAP operating income for Google was $3.75 billion, or 29% of Google revenues, in the fourth quarter of 2012. This compares to GAAP operating income of $3.51 billion, or 33% of Google revenues, in the fourth quarter of 2011. Non-GAAP operating income in the fourth quarter of 2012 was $4.42 billion, or 34% of Google revenues. This compares to non-GAAP operating income of $4.04 billion in the fourth quarter of 2011, or 38% of Google revenues.
• Motorola Mobile Operating Loss - GAAP operating loss for Motorola Mobile was $353 million, or -23% of Motorola Mobile revenues in the fourth quarter of 2012. Non-GAAP operating loss for Motorola Mobile in the fourth quarter of 2012 was $152 million, or -10% of Motorola Mobile revenues.
Now just looking at "Google Operating Income" it becomes trivially apparent:
29% < 33% GAAP
34% < 38% Non-GAAP
So just where are these growing margins? Q3 Vs. Q4. Apparently, it is only quarter-over-quarter that this analyst cares about and not year-over-year. I for one, do like to compare year-over-year, which typically does a better job of accounting for seasonal trends with searching for Christmas gifts and sales taking place in Q4 and not Q3.
One thing I found growing was accounts receivables, which grew from $5,427 mm (no Motorola) to $7,885 mm (with Motorola), or 45.29% YoY. Some of this large growth is obviously from the Motorola acquisition. However, let's compare this to revenue growth from $10,584 mm (no Motorola) to $14,419 mm (with Motorola), or 36.23% YoY.
So then I went back a quarter to look at the revenue and accounts receivable growth, when Motorola Mobile was part of GOOG. In Q3 2012, GOOG had revenues of $14,101 mm and accounts receivables of $7,259mm. Therefore, revenues grew 2.26% and accounts receivables 8.62% in Q4 of 2012. Hopefully, this only happened because of seasonal Christmas shopping/sales.
Investors and traders should keep an eye on the relative growth rates of revenues to accounts receivable in the future, since in the long run, accounts receivables should not continually grow much faster than sales. Also, always look at the numbers in the financial statements, which you believe are important, before taking an analyst's statement at face value in the media. The operating income shows margin pressure compared to last year over the same seasonal time frame and that is not bullish.