Today's steep decline in emerging market currencies should be noted by Google (NASDAQ:GOOG) investors. Google derives significant revenue from foreign markets. For the nine months ended September 30, 2013, Google's revenues from outside the U.S. exceeded domestic revenues by more than $4 billion. (Google 3rd Quarter 2013 10Q, p. 30) (hereafter "10Q").
This explains why a large portion of the 10Q is devoted to a discussion of how the company hedges foreign exchange risk. The upshot, however, is the following: "We have a foreign exchange risk management program that is designed to reduce our exposure to fluctuations in foreign currency exchange rates. However, this program will not fully offset the effect of fluctuations on our revenues and earnings." (10Q, p. 32). What foreign currencies present the most risk to Google's revenues? According to the 10Q, the Japanese yen, the Brazilian real, and the Euro:
"In addition, the general strengthening of the U.S. dollar relative to certain foreign currencies (primarily the Japanese yen and the Brazilian real) had an unfavorable impact on our consolidated international revenues, which was partially offset by the general weakening of the U.S. dollar relative to other foreign currencies (primarily the Euro), from the three months ended September 30, 2012 to the three months ended September 30, 2013." (10Q, p. 35).
The Brazilian real stands out here, as one of the emerging market currencies that may be under continued pressure. It is also worth noting that, according to Alexa, India and Russia are Google's second highest sources of traffic. Astute investors might infer that Google's first Quarter 2014 revenues and earnings could be adversely impacted by foreign currency devaluations and punish the stock price accordingly.