Hello, thanks for stopping by Round 2 of this quarter’s tech giant earnings live blogs. Yesterday, we followed along as Facebook released its numbers, and we’ll do the same Monday when Apple joins the fray. Today is about Google.  It’s well-established that Google, for all its bells, whistles and moonshots, is an advertising company. That’s the most important set of metrics to look at when the numbers are released in about 20 minutes. How is ad revenue performing, are paid clicks slowing down, and is Google stabilizing the deceleration of cost-per click — how much it makes on all those clicks.  After that, you should pay attention to the expenses. Wall Street in recent quarters started to question Google over its R&D costs and capital expenses. Last quarter, former financial chief Patrick Pichette surprisingly said it was hitting the pause button on the Glass headset project, and that Google wouldn’t just pump cash into it forever.  A last thing to watch, and this is universal to companies doing business overseas, is how big an impact foreign exchange had on the top line. Last quarter, Google said the strong U.S. dollar shaved some $400 million from revenue — no small amount. Yesterday, Facebook said currency impact took a bite out of revenue, and that it would be even worse in the second quarter.  I’d be surprised if Google goes on at length about its situation in Europe, save to say that it can weather whatever financial impact comes from across the pond. (A fine in the realm of $6 billion has been bandied about. A bigger issue would be if Google had to make fundamental changes to its business.)  Two things that are important to Google that I doubt we’ll get detailed info on: What YouTube contributes to the bottom line, and what share mobile has of ad revenue. Google doesn’t break out that latter number, which is so important. Google’s dominance began on the desktop, but whether it wins mobile isn’t a guaranteed outcome. But, hey, Google has a new financial chief, former Morgan Stanley CFO Ruth Porat, so who knows!  With about 5 minutes to go in New York trading, Google’s stock is up 1.6%.  As always, feel free to talk amongst yourselves in the comments tab. I’m interested in knowing what you think of the numbers and what you would ask the Google executives if you were given a chance on the earnings call.  A quick check on the forecasts, as compiled by Thomson Reuters and others, before the numbers come out:  EPS: $6.60 a share. This is the adjusted number, not GAAP earnings.  Revenue: $14 billion for the quarter. This is including something called “traffic acquisition costs,” the share of revenue Google pays to other companies that syndicate its search results. Revenue before accounting for TAC is expected to be about $17.5 billion.  Mark Mahaney of RBC Capital Markets is expecting paid-click growth of at least 14% and cost-per-click declines of no more than 4%.  A housekeeping note: The conference call is at 4:30 p.m. ET. That’s embedded above if you’d like to listen in.  Adjusted EPS: $6.57. This is several cents below what Wall Street was expecting.  Revenue of $17.26 billion, again shy of what Wall Street was looking for. This is the number before accounting for TAC.  Net income was $3.59 billion.  Traffic acquisitions costs were $3.35 billion.  So when taking TAC into account, revenue was about $13.91 billion. That’s a bit lower than forecasts called for.  Here is the earnings statement, which is bright and shiny, with in a new colorful format this quarter.  The operating margin is 26%, down a point from a year ago.  Revenue from advertising was $15.51 billion, as usual the vast majority are from Google’s own sites, not from affiliates. That’s broken out now because the affiliate sites have been doing worse. Google wants to show its core is made of stronger stuff.  Paid clicks grew 13%, a bit under what it was a quarter ago. The cost per click was down 7%. That strikes me as a deeper decline than anyone would have thought. There was even a hint of thought that the number would go up. It did on the affiliate sites, but not Google’s own.  Capital expenditures were $2.92 billion. That’s higher than a year ago, but down from the heady $3.6 billion last quarter.  The currency impact was particularly sharp. Google said that had foreign exchange remained constant, it’s revenues would have been $795 million higher. Last quarter, it was around the $400 million ballpark.  Despite all that, in after-hours trading, Google’s stock is up 2.5%.  I’ll concede right now that the gain is a head-scratcher, though I am still looking through the release. I can only think of two things at the moment: the costs were lower from a quarter ago, so that’s a perceived good sign. Or that the currency impact is so steep that investors are discounting it.  I’ve always been one for the kitchen-sink mentality. All the business is the business, and that you don’t just remove “one-time items” and whatnot. There are always one-time items — they may change quarter to quarter, but there are always these one offs. Plus, companies have hedging programs for currency. It’s part of the business.  Maybe that’s unfair on my part. If you exclude the currency impact, revenue was up 17%. It’s below the 20% Google had been enjoying, but it’s not cratering.  We’ve got 5 minutes to go before the call begins. Here is the first cut at the earnings story from Rolfe Winkler. He’ll update that through the next few hours, so check back on it. His findings were the same as mine: slowing growth and a big currency hit.  I should have mentioned, the non-GAAP operating margin was 33%. While the GAAP margin went down 1 point, the non-GAAP measure rose by a point.  A reader asks whether missing or beating forecasts matters if the company doesn’t provide clear guidance. Good question. Wall Street’s finest are paid to get a handle on what the results should be, but it’s always tougher without specifics from the company. (Then again, when the company does issue specifics, what do the forecasters do?)  (You can always ask whether forecasts matter anyway. Was the business good or not in the quarter?)  And the call is under way.  The current CFO Patrick Pichette is on the call, as is the business chief Omid Kordestani. (Larry Page stopped coming a while ago.)  Going over the safe harbor statements.  Pichette starts it off calling it a strong performance that was blindsided by currency issues. The overall impact was $1.1 billion, though the hedging program got it down to the $795 million number.  Google said this quarter it reclassified some of its revenue from “other” to “network” — this is balance sheet stuff.  Pichette is going through all the paid clicks and CPC, and says that the company doesn’t normally break it down. But he says Google will this quarter. He says anyone suggesting the problem is that Google can’t monetize revenue on search ads is flat-out wrong. Those people are wrong.  He says basically that people aren’t taking YouTube into account correctly on these metrics. He says YouTube is contributing to revenue.  It’s a little complicated, but he says ads called TrueView on YouTube are monetized at lower rates, and that more people are seeing them. So that is affecting the numbers too.  If you remove the impact of YouTube TrueView ads — these are skippable ads — the cost-per-click would grow year over year and be healthy. That’s a good piece of color. I imagine that analysts are going to dive into this to true to get more info.  So that was a surprising piece of info. Pichette didn’t say what that “healthy” number would have been.  Pichette closed out by going over geographic results and cash management, all on the balance sheet, before turning it over to Kordestani.  Kordestani is talking about the importance of mobile, and of how TV ad budgets are shifting to digital. The former is obviously crucial, and the latter is a giant YouTube play. In fact, Facebook made a big deal over how – despite its robust growth – it still only has a small share of big companies’ ad budget. That there is so much money to make there. Kordestani here is signalling how important that ad spend is.  While I have been going on and on, Kordestani is talking about some product stuff, like asking Google what the plot of the Godfather is, search stuff and the next billion of people coming online, hopefully to use low-cost Android One phones.  It’s amazing how much the Google and Facebook calls are similar — talking about the next billion people going online, getting them low-cost access to the Internet, and helping businesses grow through marketing.  Kordestani points out that 90% of commerce is still taking place offline, and that mobile drives it. Google gives you the info you need, then you go to the store.  “YouTube is the world’s most popular video service, on all screens.”  If a billion people come to watch video, then we’re the right place to spend your ad budget. People want to watch here — they aren’t distracted by “something else,” he says. I presume he means a newsfeed or notification. Take that, Facebook.  I like that he fired a cannon over video ad spend.  Kordestani thanks Pichette for his service, and commends his awesome retirement letter. “Ruth, if you are out there listening,” can’t wait to start with you.  Question one: if mobile apps and sites get better, does that hurt Google?  No, no, no, Google says. Google is working with developers to make it better. Google is about delivering the right results to people.  And if it can, it will benefit from monetization.  A follow on spending is usual stuff: won’t comment on future, not surprised by it, it’s our strategy and the high levels are important.  Next question is on the paid click and CPC — have the trends in recent quarters always been about YouTube TrueView?  No, that has is just for right now. Google is making the ads better, and more people are watching. It’s great for YouTube, but does have that impact on the CPC.  A question about mobile search changes, and on the margins and costs.  Our goal is to help people search and interact on smaller screens, Google says. Specifically, a lack of mobile friendliness is a problem. A high-ranking nonfriendly site won’t get ditched from search results if it is really relevant. But friendly sites are better for monetization.  On margins and costs, Google says no big one-time items this quarters. It was clean, company not focused on a year ago, per se, but growing quarter to quarter.  Question back to the YouTube-CPC drama.  Google site CPC would be growing if you took out the TrueView ads. But no number given.  No one asking for the number. The Google execs call it “color.”  Next question is on Google Wallet. How will it compete with Apple Pay? Kordestani says that it’s great that the industry is opening up. Google’s focus is to bring new payments APIs, the goal is to remove friction. So no comment on direct competition or performance.  Pichette says no news on what Google is doing with its cash. No big giveback before he leaves. He does say Google considers what to do with its cash all the time.  Pichette says no news on what Google is doing with its cash. No big giveback before he leaves. He does say Google considers what to do with its cash all the time.  Question on YouTube. What changed recently to cause the acceleration in click volume on YouTube? And how to close the gap on CPCs, where YouTube ads monetize better?  Pichette says YouTube is a different dynamic, and that needs to be taken into account. Kordestani say there is strong growth in advertisers who want to run TrueView ads on YouTube. Great success, he says.  Question on mobile. Thanks for the color, but can you talk more about monetization? Some nuts and bolts stuff on screen size and search.  “We’re excited about this pivot to mobile” — such an odd thing to say in 2015.  Another answer that mentions driving traffic to stores — that Google has a place in commerce on mobile because people still do regular old Google searches for stuff. It’s not ALL inside company apps.  Left-field question about Maps and Waze. Didn’t see that coming, but interesting one: What’s it contributing? Then one about Project Fi – the new telecom offering.  Kordestani says there are more than a billion monthly users of Google’s maps services. It’s strategic. But he gives a soft response that Google does try to make it better for customers and integrate it with partners.  On Project Fi, here was our story. Pichette says it wanted to try a vision of faster and cheaper Internet service. This is a service-based innovatin, vs. Fiber or Loon, which are asset based.  Google is focused on innovation there, pushing the envelope.  Question on the costs for running YouTube. What are the everyday operating costs? What are fixed and what are variable?  Then one about that classification of revenues on the balance sheet.  Google Play has a large international skew, so it was hit hard by the currency headwinds.  He is explaining why a certain line looked lower.  On to YouTube, no numbers will be broken out. If you want to make YouTube profitable tomorrow, it can happen. Just hit the breaks on growth. But that’s not what Google is doing — it is a balance.  Analyst says two questions, one for Nikesh. … There was a chuckle on the line. Nikesh Arora is no longer business chief. He is at SoftBank now. That wasn’t a slip, the analyst mentioned “Nikesh” again.  The question was about discipline on costs and margins, but Google says no guidance will be given. “We don’t give guidance.”  “As for Nikesh,” Pichette says,”I hear he is on his way to India.” Ha!  Kordestani takes it in stride. People get us confused, he says.  “Didn’t mean to pick on you,” Pichette says. Analyst took the ribbing well.  Next question is about the YouTube click color. Thanks for the color, but can you give us more? We always trip on this stuff … maybe ditch old metrics if they don’t work anymore?  Numbers serve us well, no difference in way we report it.  Last question: Do Google consumers act differently on mobile? Is growth in mobile offsetting weakness on desktop? And which types of advertisers have strength.  Google is laser focused on monetizing on mobile, behaviors are absolutely different. The shift is “very, very dramatic.” Voice and maps and stuff are powerful on mobile, and Google is excited about it. As for ads, autos and travel were strong.  Pichette is taking some time to say goodbye now. Porat comes on in a month, and Patrick will help with the transition. He thanks the Google employees, the people at investor relations, and the financial community.  If you see me with my backpack, “stop and say hi,” Pichette says.  “We’ll see you — I mean, Ruth will see you in Q2.”  That’s it for the call. So the two interesting things I came across were just how bad currency impact is, and this whole YouTube effect on ad prices.  Pichette wouldn’t say how much CPC would have grown minus the YouTube impact, but he basically says the classic Google search ad is still growing.  This apparently is a trend that just popped up this quarter — this doesn’t account for the general trends of the past. There was no clear answer as to what cause the sudden change in ad mix.  What did Pichette mean when he called them different dynamics? It’s that means YouTube “brand ads” bring in less money because they aren’t as well-targeted as, say, a “Wal-Mart” add next to someone searching for “Wal-Mart.”  The former is a more TV like situation, where a big company just buys up space. Less change of a click, so it brings in less money. But that Wal-Mart example is pretty powerful in terms of ad focus, so it brings in more money.  If suddenly Google is serving a lot more of these TrueView ads, that will move the needle on the overall CPC number.  That’s it from me. We’ll have some more on the overall Google story and something specific on this TrueView color shortly. Stay tuned to WSJD. And see you Monday for Apple’s call.
Google reported weaker-than-expected first-quarter revenue and profits, hurt by slowing growth and the rising U.S. dollar. We live-blogged the numbers and the call with analysts.