Google Q1: First Ever Drop in Revenues, Otherwise Not So Bad

Apr.16.09 | About: Alphabet Inc. (GOOG)

Google (NASDAQ:GOOG) has just announced its Q1 2009 results, and for the first time ever, there has been a dip. Revenue fell 3% for the quarter versus the fourth quarter of 2008. But, for the year, revenues were still up.

And it’s actually not as bad as analysts had been expecting. JP Morgan had been expecting revenues to be down 13% quarter to quarter and 2% year over year. And, perhaps most importantly for Google, its paid click numbers were actually up. Aggregate paid clicks were up 3% quarter to quarter, and 17% year over year.

Google saw $1.4 billion in net income for the quarter, which was up 9%. Revenue was at $5.5 billion. Google now has $17.8 billion in cash and marketable securities on its balance sheet.

Also of note is Google’s Stock-Based Compensation numbers. In March, the company offered employees the option to trade in options that were underwater (worth less than the option price) for new, lower priced options. This was a necessary move to encourage people to stay with the company despite its plummeting stock price (at one point it was back in the $200s after being around $750-a-share a couple years ago). For this quarter, Google only counted $11 million of the total $360 million modification charge.

And Google acknowledged its layoffs this year. Whereas it had 20,222 employees as of December 31, 2008, it had 20,164 as of March 31, 2009.

Below, find the financial summary released. We’ll be on the call listening for anything of interest, and taking notes live.

Google reported revenues of $5.51 billion for the quarter ended March 31, 2009, an increase of 6% compared to the first quarter of 2008 and a decrease of 3% compared to the fourth quarter of 2008. Google reports its revenues,

consistent with GAAP, on a gross basis without deducting traffic acquisition costs (NYSE:TAC). In the first quarter of 2009, TAC totaled $1.44 billion, or 27% of advertising revenues.

Google reports operating income, net income, and earnings per share (NYSEARCA: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 for the first quarter of 2009 was $1.88 billion, or 34% 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 first quarter of 2009 was $2.16 billion, or 39% 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 for the first quarter of 2009 was $1.42 billion as compared to $382 million in the fourth quarter of 2008. Non-GAAP net income in the first quarter of 2009 was $1.64 billion, compared to $1.62 billion in the fourth quarter of 2008.


* GAAP EPS for the first quarter of 2009 was $4.49 on 317 million diluted shares outstanding, compared to $1.21 for the fourth quarter of 2008 on 317 million diluted shares outstanding. Non-GAAP EPS in the first quarter of 2009 was $5.16, 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, the non-cash impairment charges primarily related to our investments in AOL and Clearwire, and related tax benefits. In the first quarter of 2009, the charge related to SBC was $277 million as compared to $286 million in the fourth quarter of 2008. Also, 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 SBC was $64 million in the first quarter of 2009 and $65 million in the fourth quarter of 2008. 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.

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