Google Revenues Up 98% Year Over Year; "We Had an Excellent Quarter," Says CEO
Eric Schmidt Announced Financial Results for the Quarter Ended June 30, 2005
Jul. 23, 2005 11:00 AM
"We had an excellent quarter. We continued to innovate, we continued to execute and we stayed focused on our users," said Google's CEO Eric Schmidt (pictured), as Google Inc on Thursday announced financial results for the quarter ended June 30, 2005, including record revenues of $1.384 billion for the quarter - up 98% year over year
"Google had another solid performance," Schmidt said, understatedly.
Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs or TAC, the portion of revenues shared with partners.
Financial highlights for the quarter were as follows:
Revenues - Revenues in the second quarter totaled a record $1.384 billion, representing a 10% increase over the first quarter of 2005 and a 98% year-over-year increase. This revenue increase reflects strong traffic and monetization growth in the quarter as well as advertisers' growing recognition of the Internet as an effective advertising medium.
Google-Sites Revenues - Google-owned sites generated $737 million or 53% of total revenues. This represents an increase of 115% over the second quarter of 2004.
The Google Network - Revenues generated on Google's partner sites, through AdSense programs, contributed $630 million, or 46% of total revenues, an 82% increase over the Network revenues generated in the same quarter last year.
TAC - Traffic Acquisition Costs, the portion of revenues shared with Google's partners, increased to $494 million. This compares to total payments to partners of $277 million in the second quarter of 2004.
Income from Operations - Income from operations in the second quarter, on a GAAP basis, was $476 million or 34.4% of revenues, and included a non-cash charge of $47 million for stock-based compensation. This compares to income from operations of $171 million or 24.4% of revenues in the second quarter of 2004, when the stock-based compensation charge was $75 million. This improvement in operating margins was primarily because of decreases in TAC, Sales and Marketing expense and stock-based compensation expense as a percentage of revenues, offset by increases in R&D, other cost of revenues and G&A expense.
Income Taxes - Google recorded a provision for income taxes of $153 million in the second quarter of 2005, an effective tax rate of 31% as compared to a $90 million provision for income taxes and a 53% effective tax rate in the second quarter of 2004. We continue to expect that the effective tax rate for 2005 will be less than 30%. However if future revenues recognized by Google's Irish subsidiary are not as proportionately significant as expected, Google's effective tax rate will be higher than expected.
Net Income - Net income on a GAAP basis increased to $343 million or 24.8% of revenues in the second quarter of 2005 as compared to $79 million or 11.3% of revenues in the second quarter of 2004. Earnings on a per share diluted basis were $1.19 in the second quarter of 2005 as compared to $0.30 in the second quarter of 2004.
Cash Flow - Net cash provided by operating activities increased 283% to $625 million for the three months ended June 30, 2005 from $163 million for the three months ended June 30, 2004. Free cash flow is an alternative non-GAAP measure of liquidity to GAAP net cash provided by operating activities and is calculated as operating cash flows less capital expenditures. Capital expenditures were approximately $158 million in the three months ended June 30, 2005 as compared to $96 million in the three months ended June 30, 2004. Free cash flow for the three months ended June 30, 2005 totaled $467 million as compared to $67 million for the same period in 2004, an increase of approximately 600%.
Adjusted EBITDA - Adjusted EBITDA is defined as income before interest, taxes, depreciation, amortization, the non-cash stock-based compensation charge and in-process R&D. It is another alternative measure of liquidity to GAAP net cash provided by operating activities. Adjusted EBITDA increased to approximately $590 million in the second quarter of 2005 (or 43% of revenues) from $ 278 million (or 40% of revenues) in the second quarter of 2004.
As of June 30, 2005, Google had a cash, cash equivalents and marketable securities balance of $2.9BN.
On a worldwide basis, Google employed 4,183 full time employees as of June 30, 2005, up from 3,482 as of March 31, 2005.