Google Earnings Fall Below Analyst Estimates

Google

Executives blamed the strong dollar, higher compensation, real estate expenditures and some product shortages for the shortfall

Google Inc. reported higher revenues for fiscal 2014 of $66 billion, an increase of 19 percent over the prior year, on Thursday.

Revenue for the fourth quarter was $18.1 billion, an increase of 15 percent over the same quarter a year earlier. That was a bit below Wall Street analyst's estimates of $18.7 billion for the quarter.

Google CFO Patrick Pichette said in a conference call that revenue was depressed by a strong U.S. dollar, increased compensation, real estate costs and a shortage of Nexus 6 phones, especially in the U.K.

GAAP (generally accepted accounting principals) net income in the fourth quarter was $4.8 billion, compared to $3.4 billion in the same quarter of 2013. Non-GAAP operating income in the fourth quarter was $4.8 billion compared to $4.6 billion in the fourth quarter of 2013.

However net profits, while up, also came in below analyst's estimates. GAAP consolidated net income in the fourth quarter per share was $6.91, a bit below Wall Street advance estimates of $7.08 per share. Non-GAAP earnings per share for the quarter were $6.88 compared to $6.70 in 2013's fourth quarter.

The rapid increase in the strength of the dollar had an impact although it was offset by Google's currency hedging. Without the currency changes, Google reports that it would have had fourth quarter revenues that would have been $542 million. In the fourth quarter, Google recognized a benefit of $148 million to revenues through its foreign exchange risk-management program, compared to $3 million in the fourth quarter of 2013.

The board also gave final approval to the issuing of shares of a new class of Google stock called Class C. There are non-voting shares that now exist alongside Class A shares, which have one vote each, and Class B shares, which are held only by insiders and carry ten votes each. This allows company insiders to have more control than general shareholders.

Google also touted an announcement Wednesday that it would expand its Google Fiber business, which competes with cable for broadband customers, to four more markets — Atlanta, Charlotte, N.C., Nashville and Raleigh-Durham, N.C.

Google websites generated revenues of $12.4 billion in the fourth quarter, which is 69 percent of total revenues. This as an 18 percent increase over the prior year.

Google reported high growth outside the U.S. For the fourth quarter international revenues were $10.2 billion.

Aggregate paid clicks, including those related to advertising, increased 14 percent in the fourth quarter over the prior year and 11 percent over the prior quarter.

The cost per click decreased about 3 percent in the fourth quarter; and for Google sites it decreased about 8 percent during the fourth quarter.

The cost to acquire traffic increased $3.6 billion in the fourth quarter, compared to $3.3 billion in 2013.

There were also significant real estate costs as Google bought properties – including one in Redwood City, California – at a cost of $3.6 billion. Management said it needed room for more employees and for future growth. Worldwide, Google employed 53,600 people as of Dec. 31, compared to 51,564 as of Sept. 30, 2014.

Free cash flow in the quarter was $2.8 billion compared to $2.9 billion in the prior year. As of Dec. 31, cash on hand was $64.4 billion.

Google shares in after hours trading fell about 3.5 percent; but after the conference call rose to about one percent above where it had been. Class A share were about $525 each. Class C shares were about $510 each.

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