Google Files Quarterly Report

[garyp]

Just released, Google's latest quartely report.

http://www.secinfo.com/d14D5a.14AG1.htm

Included in the report the following (via DJ):

Google Inc. (GGL.XX) disclosed that federal regulators are investigating the company for issuing millions of shares and options to employees in the years leading up to its initial public offering.

In a quarterly report filed Monday, Google said the Securities and Exchange Commission has begun an "informal inquiry" into the distributions. Regulators in California and other states have also requested information about the awards, Google said.

Revenues (in thousands):
Three Months Ended
June 30
2003
$311,199

2004
$700,212
======
Six Months Ended
June 30,
2003
$559,817

2004
$1,351,835

Included in the management discussion section (http://www.secinfo.com/d14D5a.14AG1.htm#788)
Google discusses trends and below the section breaks advertising numbers down.

Trends in Our Business



Our business has grown rapidly since inception, and we anticipate that our business will continue to grow. This growth has been characterized by substantially increased revenues. However, our revenue growth rate has declined, and we expect that it will continue to decline as a result of increasing competition and the inevitable decline in growth rates as our revenues increase to higher levels. In addition, steps we take to improve the relevance of the ads displayed, such as removing ads that generate low click-through rates, could negatively affect our near-term advertising revenues.



The operating margin we realize on revenues generated from the web sites of our Google Network members through our AdSense program is significantly lower than that generated from paid clicks on our web sites. This lower operating margin arises because most of the advertiser fees from our AdSense agreements are shared with our Google Network members, leaving only a portion of these fees for us. The growth in advertising revenues from our Google Network members’ web sites has historically exceeded that from our web sites. This has resulted in an increased portion of our revenue being derived from our Google Network members’ web sites and has had a negative impact on operating margins. The relative rate of growth in revenues from our web sites compared to the rate of growth in revenues from our Google Network members’ web sites is likely to vary over time. For example, in the second quarter of 2004, growth in advertising revenues from our web sites exceeded that from our Google Network members’ web sites.



Our operating margin was greater in the six months ended June 30, 2004 compared to the year ended December 31, 2003. However we believe that our operating margin may decline in 2004 compared to 2003 as a result of an anticipated increase in costs and expenses, other than stock-based compensation, as a percentage of revenues. This decrease may be wholly or partially offset to the extent revenue growth from our Google web sites exceeds that of our Google Network members, as well as from an anticipated decrease in stock-based compensation as a percentage of net revenues in 2004 compared to 2003. The expected increase in cost and expenses, other than stock-based compensation, as a percentage of revenues is primarily a result of building the necessary employee and systems infrastructures required to manage our anticipated growth.



We have experienced and expect to continue to experience substantial growth in our operations as we seek to expand our user, advertiser and Google Network members bases and continue to expand our presence in international markets. This growth has required the continued expansion of our human resources and substantial investments in property and equipment. Our full-time employee headcount has grown from 1,628 at December 31, 2003 to 2,292 at June 30, 2004. In addition, we have employed a significant number of temporary employees in the past and expect to continue to do so in the foreseeable future. Our capital expenditures have grown from $60.6 million in the six months ended June 30, 2003 to $182.3 million in the six months ended June 30, 2004. We currently expect to spend at least $300 million on capital equipment, including information technology infrastructure, to manage our operations during 2004. In addition, we anticipate that the growth rate of our costs and expenses, other than stock-based compensation, may exceed the growth rate of our revenues during 2004. Management of this growth will continue to require the devotion of significant employee and other resources. We may not be able to manage this growth effectively.



The portion of our revenues derived from international markets has increased. Our international revenues have grown as a percentage of our total revenues from 28% in the three months ended June 30, 2003 to 31% in the three months ended June 30, 2004, and have grown from 28% in the six months ended June 30, 2003 to 31% in the six months ended June 30, 2004. This increase in the portion of our revenues derived from international markets results largely from increased acceptance of our advertising programs in international markets, an increase in our direct sales resources in international markets and services as well as customer support operations and our continued progress in developing versions of our products tailored for these markets.

I believe most if not all of this info is also found in an amended S-1 filing today.
http://www.secinfo.com/d14D5a.14Aed.htm

[andrewgoodman]

$1.35 billion in revenues over six months ending June 30. In spite of recent woes... this is well above expectations. Google's been doing their best to sandbag, but this growth thing is getting out of hand. I would love to reprint a big sheaf of analyst reports telling them that they have no idea what they're doing, that their growth is over with, etc. etc. I guess it's always possible to predict the apocalypse (there is always one just around the corner)... but I gotta say, this does not look like a company that needs the advice of pundits.

[dannysullivan]

Yes, I particularly enjoyed this helpful revelation from the SF Chronicle:

"Let's survey the most important one. Google began as a public service that helps people search the Web. For ease of use and cost (it's free), "googling" deserves praise. And search isn't standing still. Brin and Page talk about revolutionizing the practice of searching the Internet, adding the ability to locate sounds and images in addition to text. Search is hot: Yahoo and Microsoft are chasing this same dream as well. But perhaps surprisingly, search is no longer the end game for Google. Public service is giving way to private agendas.

This is Google's dirty little secret and the worm at the core of the company's apple. Google's game is now advertising. It is the fastest-growing platform for advertising in the history of American media. Google, and Yahoo, are attracting ads that are linked to content."

Honestly, I didn't know whether to laugh or pick my jaw up off the ground. Google's had ads since six months after it emerged from beta. Yes, Sergey and Larry thought, "I know, let's just run a free service. That's a great business plan." Of course it sells advertising -- that's not news. And it has done so for years.

By the way, just in, news that they may finally open to trading tomorrow: Google May Start Trading Wednesday.