The way I like to think of it is that Google has a wondrous faucet that constantly exudes liquid gold, about a cubic centimeter every second. It is our job to keep the faucet open. Occasionally we also do other cool stuff.
>Alphabet was forced to swallow a $586 million tax charge on the non-GAAP line related to its stock-based compensation, costing the company about 83 cents a share — the difference between a substantial earnings miss and a huge beat.
>The tax charge is the result of a rule change in the U.S. targeting companies’ use of stock-based compensation to sweeten their adjusted earnings numbers. The Financial Accounting Standards Board last year implemented changes that force companies to better account for the tax benefits of paying employees in stock instead of cash, and the charge reflected the benefit Alphabet had realized for the full year.
I believe the "one time tax hit" is adjusting for their past fake non-GAPP earnings which pretended giving away billions in stock wasn't material (I am guessing, so I might be wrong).
They also decided to stop using that deceptive practice, so going forward the non-GAPP earnings will be less fake.
It is sad Google used such deceptive practices. I believe it was forced into being less deceptive by accounting standards not by some decision to be less deceptive going forward.
Is there any reason someone would look at non-GAAP earnings instead of GAAP given that companies muck around non-GAAP deciding whatever costs to exclude depending on a whim?
Paid clicks on Google properties +43% - "yaaay we're driving more paid search!"
Cost-per-click on Google properties -16% - "ouch our advertisers are seeing less value on these add'l clicks!"
To me the second part of this is going to be most interesting to watch - if the clicks they are onboarding are lower quality, this is going to be a net negative.
It doesn't work like that. Lower CPC does not mean lower value. It just means Google pushing into new eco-systems where CPCs are different from desktop search (e.g. mobile, YT, new publishers/partners) and it may take some time to reach equilibrium among the various actors depending on the ROI of the medium for the respective actors.
Precisely that. Change in Google's CPCs is a great example of Simpson's Paradox. CPCs on every property separately are growing, but aggregate is declining due to much faster growth in areas where CPCs started low
If the half of the world without an Internet connection gets online and starts clicking on ads, their clicks are probably going to be less valuable than the existing rich world clicks. I don't see how that is a net negative for anyone, though.
Google is selling ad inventory where it didn't previously. Google Shopping is slowly rolling out across the world, initially in new markets there is a lot less competition than established ones, so the clicks can be had a lot cheaper.
For example we are probably paying half for the same quality Google Shopping clicks in New Zealand than we are in Australia or the US. This won't last.
I think his point was that if CPC decreases monotonically forever, then eventually revenue will have to suffer regardless of volume growth. As others have mentioned, this doesn't take into account the mix of new ecosystems, though it's noteworthy that Google doesn't break down CPC by segment so we could see trends for desktop/mobile/YouTube/etc/
But if you look at trend on each individual property separately, CPCs are not declining anywhere. It's just effect of Simpson's Paradox on total number
I tend to agree with this analysis. Not only is the cost per click going down, but the amount of money they are paying out to get traffic is now at a staggering $7B a year run rate. Paying for more traffic and getting less in revenue per click shows up as a higher 'cost per revenue $' value which has gone up from 38% to 41%.
I have felt like the easy pickings have been behind them for a while but given enough money you can buy a lot of traffic. Not great traffic mind you but a lot of it.
i believe its that the supply of sold online ad clicks has grown significantly (fb) and therefore marketers have more bidders resulting in lower costs (not just for google but the whole market)
The problem is that institutional investors seem to really care about CPC. Even when RPM is up due to greater CTR, CPC drops have allegedly affected their stock price.
..and yet, TV advertising is still a huge business
YouTube can target ads much better than TV, and with TrueView ads the advertiser only pays if the viewer doesn't skip, so more of the revenue is going to be coming from ads that mutually add value (at least that's the theory)
Put crudely, name and brand recognition. People view familiar things more favorably than unfamiliar things. If you've heard of it, you are more likely to buy it. If it has been on TV a lot, you've heard of it -- even if you didn't like the ad.
There's a correlation between TV advertising and increased sales over the long term.
Building common knowledge of what choosing particular brands means. If you know everyone has seen those ads with some folks relaxing on a beach with a Corona, then you know that people will think you are laid-back when you bring Corona to a party.
This is why super bowl ads are more expensive per viewer, because the audience can expect their social group to have also seen the ads.
Coke tastes better if you know it's a Coke. That's what a top-notch advertising department does for you. Well, that and early memories of drinking Coca-Cola on a warm summer night. It's the real thing, baby.
Someone else will have to explain what on earth it means, but last year's press release said
> For Q4 2015, our effective tax rate reflects impact of certain one-time items in the U.S., specifically the resolution of a multi-year audit with an ETR impact of 9%, as well as the full year impact of the R&D tax credit with an ETR impact of 8%.
"Porat replied, “In terms of, you noted the one-time item, there are really two I’m actually going to call out. One was in the cost of revenues. I noted that as equipment costs were elevated by some one-time charges, and so there was some pressure there. And then the other item I noted was with respect to our tax rate. I noted that there was slightly elevated tax rate this quarter. It’s always affected by the geographic mix of results but we did have a discrete that affected the US tax rate, to make that clear.”"
It still doesn't answer the question. Basically a one time charge increased the tax rate. In one of the live blogs, an analyst mentioned some windfall tax from Europe. But now I can't find it.
For FYE 2012 through the end of 2015 Alphabet's Income After Tax has been, on average, 81% of its Income Before Tax. That implies a 19% average tax rate. Excluding Q4 2015, the same ratio for Q3 2015 through the end of Q3 2016 was 82%. That implies an 18% average tax rate.
The anomaly was Q4 2015, not this most-recent quarter.
I'd have to take a look at their statements to see, but it sounds like they had some one-time charges that resulted in a tax benefit thereby reducing how much they had to pay in taxes, ergo the 5% rate. And since those no longer apply(being one off items) their tax rate is back where it should be.
"Reversion to the mean" is the process where later data is more typical than an outlying datum, so aberrations caused by outliers are averaged out, giving a result progressively closer to the mean of the data as subsequent data is added.
Does that mean that its profits would be volume weighted based on where they're earned? Because they still do not match up, 12.5% would be the lower boundary - of which Google was below on many years. What you've come up with is a rationalisation.
There is no way you can spin it, there is clear avoidance & the excuse is a battle on details of the law.
The financial statements of these companies boggle my mind sometimes. In addition to Google's, I saw this bit on Microsoft's today:
> Accounts receivable, net of allowance for doubtful accounts of $426 and $335
What they're saying is, that's $426 million dollars they're owed that they expect to not get, because of defaults and deadbeat customers. And it's just a line item!
Is there some way to see how well Google Fiber is doing? It's really worrying that they seem to be slowing it down. Without such disruption and newly corrupted FCC, we might be entering pretty bad times for the ISP users.
I didn't miss it. But it doesn't provide any financial info. And quotes like "Larry Page got tired of it" which were floating around the time that article came out, weren't really helpful. What I want to understand, is Google Fiber profitable or not? Just being "tired" because it grows slower than they expected, isn't a good reason to gut it.
> What I want to understand, is Google Fiber profitable or not? Just being "tired" because it grows slower than they expected, isn't a good reason to gut it.
Why is it not a good reason? Even if Google Fiber is profitable, it can still be a bad idea after you consider opportunity cost.
Because it shows they they didn't really mean it. If it's profitable, and they really wanted to disrupt the stale ISP market, they should have persisted. Otherwise they just showed that they aren't any better than incumbents.
It can be profitable on paper but be a net loss after opportunity costs are factored.
If it makes $500 million a year in profit, but the resources devoted to it could be used on a project that is reasonably believes to offer (for example) $700 million a year in profit, it makes financial sense to kill Fiber.
That's what incumbents say about not upgrading their users to better network, and instead spending crazy money on buying media companies. Later offer more profits, and greed drives their decisions.
The whole point Google Fiber was trying to make (at least Google hyped it this way), was that it's possible to have a profitable ISP that offers cutting edge network. But if Google think the same way as incumbents, then they didn't just fail to prove the point, they proved the opposite. I.e. that greed stops progress.
So no, it doesn't make sense to kill Fiber if Google's intentions and declarations were true. If they lied, then yeah, it's easy to understand what happened.
It's a miss if the market had already priced in expectations that it would be better than that; indicating that the market price is wrong and a correction could be expected imminently.
To the extent that we can assume equity prices mean anything, of course.
Undue attention is paid to short term blips. And it is indeed silly to get excited about exceeding analysts guess or falling short by a couple pennies a share.
About the 22% growth, that isn't being called a miss. They actually exceeded guesses on revenue. Net profit, while up, is what is being called a miss. Which net profit you want to use changes the increase but GAAP earnings were up 7%.
And yet in after-market trading the stock is down some 3%. I do think though it'd be cheaper for Google to find a way to diversify away from ads now that it's likely having more competition from the likes of Facebook and Snapchat but I'm no MBA nor an analyst so what do I know.
3% is a normal daily up and down for GOOG. In the past 15 minutes, it's regained 1/3rd of that loss in after-hours trading. The share price is still basically sitting at its all-time high. Your comment is potentially misleading, confusingly worded, and it's unclear what point you were trying to make. Some combination of those things should explain any downvotes.
Some data to back up the closing price (all but useless given the after-hours price and the apparent open for tomorrow being pretty much what it was today before earnings): I took the last 20 days of adjusted closing prices for GOOG from finance.yahoo.com, and a -2.18% change is 2.76 std-deviations away from the average fluctuation. Not significant but still a lot.
1. How did X do?
2. How did analysts think X would do?
Perfect analysts would predict Xs earnings every time, and the stock would be unaffected by announcements. But analysts aren't perfect. That's ok!
What's not ok is that the headlines are invariably "X misses expectations". No, the expectations were wrong.
I'm not saying a company can't do well or badly. Only that its job is not to match analyst expectations, and "X misses expectations" promotes that fiction.
Analysts aren't saying "I think GOOG will grow by X% because reasons," they're saying that based on all factors, if GOOG is run well and executes well, it will grow by X%. Growing by less, even when "less" is 20% and many billions of dollars, means that the analysts believe there is some inefficiency and GOOG, which is why a stock can drop after a company posts a 20% gain in revenue.
With the caveat below (i.e. maybe it's a term of art that I don't understand), I think that's precisely the misunderstanding I'm talking about.
Say I want to buy stock in a company. To decide which, I look at what analysts have to say about various companies, and pick one that they predict will do well. That's the job of analysts: to give prospective buyers (and sellers) an idea of where a company is heading so we can make buy/sell decisions.
That's very different from grading the "efficiency" of the company. In fact, the analyst's job is to take as many inefficiencies into account as they can. I don't care if this company under pristine circumstances can get 60% profit margins; if the analyst knows the current circumstances can only yield 20%, they had better give me an estimate of performance with 20% in it.
Seen in that light, analysts predicting something different from the company's actual output is clearly an analyst failure. But do notice that this doesn't mean the stock should ignore the error, since buy/sell decisions are made on the basis of analysts' expectations.
I'm not so sure. "Analysts Miss X Results" immediately makes you wonder "why", which is a fair question. "X Misses Expectations" instead makes you think X had a bad quarter. I think forcing people to make the conversion in their head every time is bad headlining.
Of course, there's something to be said for it being a "term of art". This may just be my layman's interpretation.
Revenue is up 22% but EPS is up only 7%. I would normally expect Google's EPS growth to be higher than revenue growth. Where are they spending all that extra income?
They did increase headcount by more than 10k (from ~62k to ~72k). Headcount tends to produce more revenue eventually, but there's a lag. Staffing up by that much indicates that they're predicting significant growth.
Precisely this. Large scale infrastructure growth also costs quite a bit, especially when you pay for your own network and other works in progress https://cloud.google.com/about/locations/
Notice that their TAC expenses for paid traffic went up over half a billion dollars to 10% of revenue from 8%. They are spending more to buy more traffic to grow click rate to cover lower CPC rates. You can model that like taking a hit to the gross margins.
Quite right - thanks. If Alphabet had paid the same tax rate as the previous year then net income for the quarter would have been $6.49 billion, an increase of 32%.
It's fun to have your own extension, isn't it? then you can host http://hooli.xyz as well, which is good fun too (It's the parody website of the equivalent of Google in the TV show "Silicon Valley", which in itself is a good amount of self-irony).
You're correct, very interesting. In summary, Daniel Negari paid $185k for the .xyz, purchased a few other gTLDs, and Alphabet supposedly only pays $9 per year for its domain. I presume Google is confident in xyz having no security breach and a good disaster recovery procedure ;)
2012: $14,469 m
2013: $15,899 m (up 9.9%)
2014: $17,259 m (up 8.6%)
2015: $19,651 m (up 13.9%)
2016: $24,150 m (up 22.9%)
Impressive growth for such a big company.
Sources: https://abc.xyz/investor/news/earnings/2016/Q4_alphabet_earn... and https://www.google.com/finance?q=NASDAQ%3AGOOGL&fstype=ii&ei...