- Google missed analyst estimates or revenue dragged by currency fluctuations.
- Google's net margin was impacted by a higher tax rate.
- Google's future outlook looks strong, as the company focuses on app distribution.
Google (NASDAQ:GOOG) missed estimates of revenue and non GAAP earnings per share for Q1 2015. However, Google’s revenue would have grown at a healthy pace on a forex neutral basis, and its net margins have been impacted partly by higher tax provisioning. Google’s stock is up by about 3.5% in after-hours trade, reflecting a decent performance on most metrics, and healthy operating margins.
Google Earnings vs Analyst Estimates For Q1 2015
|Revenue ($ billion)||17.26||17.64||-2%|
|Non GAAP EPS ($)||6.57||6.65||-1%|
Google Earnings Q1 2015: Revenue Growth Slowed
Google’s revenue growth was impacted by a strong Dollar. We saw this with Facebook, and in Q1, lower growth rates are bound to be the case for companies that generate a significant part of their revenue outside the US.
Google’s revenue grew to $17.26 billion, representing a YoY growth of 11.9%. Excluding the impact of currency fluctuations, Google’s revenue would have grown at a much more impressive 17% YoY.
If you compare Google’s absolute revenue addition over the year ago quarter, absolute revenue addition slowed in Q1. This was also the case in Q4, where again, forex movements weighed on growth.
All in all, in terms of overall growth, Google’s performance was a tad disappointing, but factors which we have discussed later in the post offer hope, going into Q2 2015.
Google Revenue: Segmental Break Up & Growth
On the whole, ad-revenue contributed 90% of Google’s revenue, as growth in Google’s non-core businesses slowed to 13% YoY.
The 14% YoY growth in ad-revenue on Google properties outpaced the 5% growth on Google’s ad-network. Ad-revenue on Google properties accounted for 77% of total ad-revenue, with network partners accounting for the rest.
Slower ad revenue growth on Google’s ad-network, resulted in a reduction in Traffic Acquisition Costs to 21.6% of ad-revenue, from 22.2% in Q4 2014 and 23.1% in Q1 a year ago.
Google’s aggregate Cost-Per-Click (CPC) continued to decline, falling by 7% YoY. The aggregate CPC was dragged by a 13% YoY fall in the CPC on Google properties, compared to a 2% rise in the CPC on Google’s ad-network.
Growth in Google’s aggregate paid clicks came in at 13% YoY. The good news here is that paid clicks on Google properties grew at the same pace as it did in Q4 2014. Growing at 25% YoY, paid clicks on Google sites weren’t impacted negatively by the loss in search share in the US.
Following Mozilla’s decision to replace Google with Yahoo as the default search engine, it was feared that Google’s paid clicks growth would be hurt. In this case, it was paid clicks on partner sites that dragged aggregate paid clicks growth, falling by 12% YoY.
Google Q1 2015 Earnings: Profitability
Google’s operating margins rose to 25.8%, coming in above its 2014 average of 25.2%. Up from 22.5% and 24.3% in Q3 and Q4 of 2014, the upward trend in operating profit margins was a good sign.
Google’s net profit margin of 20.8% was in line with its 2014 average of 20.7%, excluding one-time gains from the sale of Motorola.
Excluding gains from the sale of Motorola, which propelled Q4 margins to touch 26.3%, Google’s net margin in Q4 2014 would have been about 22%.
Google’s EPS grew by 3.2% to touch $5.2 a share.
Google Future Outlook
Beyond Q1 financials, what’s most comforting is that Google appears to have clawed its way back in terms of US search share. Estimates from StatCounter show that Google’s search market share in the US has been restored to November 2014 levels.
While Yahoo still seems to be holding onto some of its gains from the Mozilla deal, Google’s search share is estimated to have been restored at the cost of Bing.
US Search Market Share Estimate Source: StatCounter
Another positive is that Google seems to have taken its opportunity in app distribution very seriously. Earlier in Q1, Google announced that it was pilot testing Google Play Store search ads to promote apps. That apart, app promotions have also become a familiar sight among mobile search results.
App distribution is a huge market, and as we’d highlighted in a previous post, game developer King.com (maker of Candy Crush), reportedly spent as much as $400 million, or a fifth of its revenue on advertising in 2014. With most of those spends being gobbled up by Facebook, app distribution is good way for Google to make inroads into Facebook’s market.
Google Earnings Q1 2015: Summing It Up
All in all, Google’s earnings release for Q1 throws up some positives, with no major negatives. Given the company’s stable financials and prospects of growth ahead, we remain bullish about the stock, over the long term.
Google Earnings Q1 2015 Preview
- Google is expected to report its Q1 2015 earnings on 14 April 2015.
- Google's lost search share in the US could be a potential headwind.
- Google's Play store search ads could be the big ticket positive.
Google Earnings Q1 2015 : Preview Video Transcript
Hello and welcome to this videograph about Google earnings for Q1 2015.
Google Q1 2015 Earnings Analyst Estimates
Google (NASDAQ:GOOG) is expected to report its Q1 2015 earnings, post market hours on the 14th of April 2015, followed by its earnings call thereafter. Analysts expect Google to report a revenue of 17.64 billion Dollars, translating to a year on year growth of 14.4%, and a non GAAP earnings of 6.65 Dollars per share, growing at 6.1% over the year ago quarter.
Google Q1 2015 Earnings Outlook: Potential Headwinds
Google's replacement with Yahoo on Mozilla's Firefox browser, saw the search giant lose search share in the US across devices, in Jan and Feb 2015. Google's loss of search share is expected to have impacted its online search advertising revenue, potentially hurting its overall revenue growth in Q1.
Google Q1 2015 Earnings Outlook: Potential Tailwinds
Starting feb 26th, Google started pilot testing search ads within its app store, allowing app developers to run paid promotions for their apps, within Google's play store. The move may not have a huge impact in Q1, but investors will be eager to know about the progress on this front, since the move could potentially shore up Google's slowing ad revenue growth.
Google Earnings Q4 2014 Recap
Quickly looking back at Google's Q4 2014 earnings, Google reported a revenue of 18.1 billion dollars, growing at nearly 16%, with operating and net profit margins coming in at a little over 24% and 26% of revenue respectively. Google's traffic acquisition cost reduced compared to Q3, to 22% of ad revenue. Google's aggregate cost per click continued to decline, falling by 3%, and paid clicks rose by 14%, representing a slowdown in both, year on year and sequential growth.
After a rather mediocre Q4 2014, Google's Q1 earnings will be watched closely by investors and analysts alike.
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You can see our Google stock analysis video for a quick roundup of Google's fundamentals post its Q4 2014 earnings.