Earnings calls aren’t usually a thrill a minute, but Google’s third-quarter call this afternoon could offer some real drama.
CEO Larry Page has been markedly absent for several months, claiming that he’d lost his voice. He re-emerged publicly recently, and will likely lead the earnings call today.
The financial numbers leaked earlier today, causing stocks to plummet. What will the company’s response be?
In the press release, the company emphasizes the positive in its numbers.
“We had a strong quarter. Revenue was up 45 percent year-on-year, and, at just fourteen years old, we cleared our first $14 billion revenue quarter,” said Page said in his statement.
But there are some notable omissions in Page’s take. First, Google’s gross revenue — or intake, before any spending — is up because Google began to claim Motorola revenues last quarter. Secondly, revenue is great, but profit — revenue minus spending — is really what matters, and profit in the third quarter of 2012 was just $2.18 billion, compared to $2.73 billion in the third quarter of 2011.
That’s the background. Watch this post for updates as they happen on the call — assuming the bandwidth isn’t too jammed to let us in.
1:33: Larry Page is on. His voice is weak.
“I’m sorry for the scramble earlier today. We had a strong quarter. I’m really happy with our business.”
He gives an overview: Mobile monetization is already a significant fraction as compared to desktop. [translate: it's way smaller, but it's growing.] Users changing from one screen to another is an “enormous opportunity.”
“Today there are over half a billion Android devices, with 1.3 million more being activated everyday.”
Last year $2.5 billion run rate from mobile advertising. Today, the run rate is now over $8 billion.
1:37 As screens multiply it’s more important than ever that we converge our services. Users want one simple, beautiful Google experience. Technology should do the hard work. Screen independence is at the core of our strategy. When you’re using Chrome, switching devices is truly painless.
1:39 In advertising “campaign experience,” mobile opportunities often get missed.
1:41 Page talks up the knowledge graph. There’s much more that we can do to get you the right information at just the right time. You might have an important event but traffic is bad and you need to leave early. Google Now which we launched on Android in June gives you all that information and more.
1:42 Introduces Patrick Pichette, CFO
Pichette gives his overview: Overall we’re very pleased with the growth this quarter, despite currency fluctuations. U.S. growth continues to be strong.
More detail on $8 billion annual run rate on mobile: Last year’s number included only gross revenue from mobile ads, now it includes revenue from Play ads and consumer spending on Play apps.
1:43 Nexus 7 sales drove “other revenue” category up. Some of our existing [mobile] ads have better monetization than desktop today.
Motorola: Our team has made a lot of changes. That said, we’re just at the beginning of the Motorola/Google story. We should expect numbers [related to Motorola] to be very variable.
Paid click growth up 6 percent. Aggregate CPC down 15 percent, but remember that currency headwinds also had a significant effect.
1:45 U.S., UK, Japan: had robust growth. Hurt by economic woes in Europe. Revenue from US up 23 percent. Non-U.S. revenue accounted for 42 percent of total.
Motorola had an operating loss in Q3.
1:48 Headcount went down by about 1,000. Google added about 1,800. [That means Motorola dropped 2,800.]
Notes sunset of Google TV ads in Q3.
1:50 Pichette introduces Nikesh Arora, chief business officer
Key trends: rise of multi-screen consumer. In long run, screens will continue to diverge, but our advertising opportunities will converge.
Will “develop advertising that can take advantage of the fact that consumers use this many screens.” Example: T-Mobile ads for consumers near their stores.
1:52 Second trend: ability to deliver more precise answers to consumers. Google Now and Knowledge Graph.
As of yesterday, Google Shopping completed its transition to a fully paid experience.
We’re going to reduce the number of steps from search to transaction.
1:54 Third trend: something about better syncing advertising campaigns.
Working on creating more video inventory with YouTube. YouTube has 2.4 times more video advertisers than the average television network.
Google uses YouTube to anchor, distribute and syndicate content.
Enterprise products: Use continues to grow. With recent launch of Google+ for enterprise, companies are starting to use Google+ and Hangouts to get things done.
1:58 Arora opens up for question and answer.
Question: Why did marketing expenses go up so much?
Answer (Pichette): What you see is the impact of support [advertising] for the Nexus 7.
Question: Why was Shopping converted to pay-to-play?
Answer (Larry): We’re just really excited about providing a better experience for our customers. When you search for something, you should get a well organized set of product listings and ways to buy it, and our ability to do that on paid listings is helping us provide a better user experience. We just launched that yesterday and we’ve still got a ways to go. We’re really looking to provide answers for people. We want to do the same thing with our advertising, to make sure that we get you as a user the right answer.
Question: Mobile searches are strong. What’s happening with desktop searches?
Answer (Larry): We’re starting to live in a new reality, where the ubiquity of the screens helps users move from intent to action more seamlessly. This creates a huge opportunity for advertisers. I alluded to changes that we’ll make to our ad system to improve experience for advetisers and the users. We’ve seen tremendous growth in Android, and obviously we have tremendous influence. We can notify you of commercial experiences as well. [He's talking about notifications that are ads.] … We’re uniquely positioned to get through that transition and to really profit from it.
[This is really the key issue behind the stock tank earlier.]
Question: If open-graph begins to dominant, will Google be left out given protocols it uses for search?
Answer (Larry): We’ve made a huge investment in Knowledge Graph. That’s a major effort for us, and we’d obviously love to have other people help us with that [by developing/using protocols].
(Larry): We’ve had Google TV for some time, it’s great to have a real browser on your TV, and YouTube is integrated on many, many consoles. We’re obviously working hard to get distribution for YouTube and Chrome on many television screens.
Question: Sorry to harp on the CPC question. I think everybody assumes the bulk of the “down 8 percent” figure is mobile, but what are the other drivers?
Answer (Nikesh): On the CPC trends, nothing has changed. I think people tend to assume it’s automatically mobile. Google.com vs. network, ad quality, emerging vs. developed markets — all these mix effects are at play in the CPC. If we start giving all the breakdowns, it’s just endless. CPC is going down, but paid click rate is going up, so the fact that there’s not as much CPC is not as big a deal.
Question: Can you give us an idea of what the $8 billion for run rate for mobile? What is the mobile advertising piece minus the stuff from Google Play? How does Google Fiber play into this vision to have content and search capability go across multiple screens?
Answer (Nikesh): On the $8 billion, we don’t break them down. Of the three categories we gave you, ads continue to be the bulk of it. On Google Play, everything that’s content is booked on a gross basis, and everything that’s apps is booked in net basis.
[Clear as mud.]
Larry talks about Google Fiber: We’re in the early stages. I’m really excited about it. I’m about to get one for my house to try out. You control it with the Nexus 7 tablet. I think it will be an amazing user experience that can really
Nikesh: It’s important to note that we’re pushing for the next generation of the internet with Google Fiber. People are asking for higher speed at lower prices. I think we’ve got a great mousetrap with Google Fiber.
Question: How concerned are you that in the mobile world we’re living in an apps economy and that Google [search] might not be the first place users go on mobile?
Answer (Larry): A lot’s been made of apps vs. search and I don’t think that’s the right way to look at it. There’s somethings that are better about apps, there are somethings that are better about the Web. Over time if we do our jobs right, those differences will merge. You’ll be able to go to apps the same way you go to websites and you’ll have search capability in apps. What you want is a seamless experience that goes across, and that’s what we’re building. I think we’re going to see tremendous growth in these things. There’s a small, relatively small number of people that have Chrome on their mobile devices. I find Chrome on my mobile advice, the same experience as having a desktop a few years ago. You can buy things, it remembers your credit card…
Question: Could you expand on YouTube and provide your 3-5 year vision for its role in distribution? Nikesh, could you talk about emerging markets where Android is only screen people have access to?
Answer (Larry): YouTube transitioned for me maybe a year ago to being something that can keep me entertained for hours, they’re now kind of tailored for me; I have my channels. Usage continues to grow like crazy. Monetization has grown, too, which causes people to put more content up.
Mentions horse-dancing video.
That kind of thing to really just flip a switch and get world-wide distribution if you’re a provider of this content is an amazing thing. We’re just going to continue to grow that. It’s going to be available everywhere, it’s going to keep track of the things you’re interested in.
True View is exploding. Because users can skip, it encourages ads that are entertaining not annoying.
Nikesh: We’re excited about Android growth outside U.S. We’re doing a good job working with phone manufacturers to increase distribution of Android. Monetization is also improving.
Question: Are searches on mobile the same quality? Are you still getting high quality CPC on e-commerce sites?
Answer (Larry): In travel, we bought ITA software for a sizable amount because we thought it was important to provide a better user experience, to the extent that you actually need that detailed information. As long as we’re providing detailed, accurate results, I think that translates across all screens.
Nikesh: A billion products in Google Shopping. Product listing ads gets us closer to user intent. The fact that we can show them reviews, pictures, pricing, that gets them closer.
Question: How long will it take to close the gap between desktop and mobile monetization? Why was travel a weaker category today?
[Mobile again. This is important.]
Answer (Larry): We have a policy of not talking about the future. But I think we’re positioned very, very well, uniquely well [to better monetize mobile]. Our mobile monetization is not zero, it’s a significant number, as we tried to hint at with the $8 billion number [which mixes mobile revenue with Google Play]. Our ad system requires that advertisers spend some effort to deal with mobile. Until recently, mobile was a small percentage of what advertisers spend. I think that’s starting to change, and advertisers are starting to react to that which will obviously benefit our monetization. I am not worried about this in terms of our business at all. I see this as an opportunity.
They thank Google employees and the financial analysts on the call: That’s not the usual protocol; they’re sounding humbled.
2:35 over and out.