Feb 5, 2008

Google vs. Yahoo - Q4 Results

Back In September, Google produced some pretty amazing results. Revenue came in at $4.2b, representing a 57% increase over third quarter 2006 revenues of $2.69 billion and a 9% increase over second quarter 2007 revenues of $3.87 billion. TAC totaled $1.22 billion, or 29% of advertising revenues. On Jan 31st, the company released it's 4th quarter earnings and things were not so good. Google reported that its fourth-quarter revenue came in at $4.83 billion, up 51% from a year ago. Excluding advertising sales that Google shares with partners (also known as traffic acquisition costs or TAC), the company reported revenue of $3.39 billion, below the $3.45 billion analysts had expected, according to Thomson Financial.

Google posted net income of $1.44 billion, or $3.79 a share, up 17% percent from a year ago. Profits, after backing out certain gains and charges, came in at $4.43 per share, narrowly missing Wall Street's expectations of $4.44 a share. Eric Schmidt, CEO of Google, had his game face on - stating that the Company was very pleased with it's results. "It reflects strong momentum in our core business, growing receptivity to our new business initiatives and improved discipline in managing our operating expenses." Schmidt told analysts he was optimistic about 2008 in a call after the company's earnings were released, saying he had not seen any "negative impact" from "rumors" of an upcoming recession. But Google CFO George Reyes admitted to analysts that ad inventory on some of the hottest real estate on the Web - social networks - is "not monetizing as well as expected." It's worth noting that Google's International Sales now represent 48% of total revenues, up from 44% in the fourth quarter of 2006. The company has also has continued to aggressively hire new workers, adding 889 employees in the fourth quarter, half of which were engineers. Brining total employee count to 16,805 people in more than 20 countries.

Things are even worse at Yahoo, which reported 23% drop in fourth-quarter profit and will lay off over 1,000 of its 14,300 employees in mid-February. 2008 Net Revenue Guidance is $5.35 to $5.95 billion, versus consensus of $5.9 billion. Interestingly, Yahoo President - Sue Decker, indicated that there was weaker online-ad spending during the quarter among some categories of advertisers affected by broader economic issues. Spending by advertisers in the financial, travel and retail areas declined or grew more slowly in the fourth quarter compared with a year earlier. Her tone contrasts with that Eric Schmidt from Google - who seemed to brush off any comments about a possible slow down in online adverstising spend, in 2008.

And then there's Microsoft. The company easily exceeded revenue and EPS whispers and raised its guidance despite the threat of economic weakness. Office and Xbox revenue stronger than expected, other divisions in line. Revenues were up 30% to $16.4 Billion. Operating Income was up 87% to $6.5 Billion & Earnings Per Share (EPS) were up 92% to $0.50 per share. It's worth noting that - even in this very volatile financial climate, Microsoft was able to generate strong results in all of it's key Business Units - including $863M from the much magligned Online Services Group. Highlights from a previous blog post - here. Microsoft shareholders have got to be happy with the strength across our 5 Key Business Divisions.
  • Windows Client (Vista/XP): $4.3 Billion, up 68%
  • MBD (Office/SharePoint): $4.8B, up 37%
  • Server & Tools (SQL Server/Visual Studio): $3.3 Billion, up 15%
  • Entertainment (Xbox & Zune): $3.1 Billion
  • Online Services (MSN/Live): $863M, up 38%

Market Leaders are expected to return strong results quarter after quarter - and you're only as good as your latest report. I dove my hat to MSFT - for delivering very stellar results across 5 very distinct Business Areas.......

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