Google earnings are in - what do the numbers say?

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

Google has enjoyed another very successful quarter, and their earnings are quite high, but when you pick through the numbers a bit, you wonder if the ebullience currently being exhibited by investors in Google might cool quick. There’s a few trends you can notice right away:

Other Cost of Revenues — Other cost of revenues, which is comprised primarily of data center operational expenses, as well as credit card processing charges, increased to $204 million, or 8% of revenues, in the second quarter, compared to $181 million, or 8% of revenues, in the first quarter. Other cost of revenues also included stock-based compensation of $2 million in the second quarter, compared to $2 million in the first quarter of 2006.

Ouch, 8% of total revenues going to credit card processing? Whoa, you need to find a better way to do that. $204 million is high.

Revenues — Google reported revenues of $2.46 billion for the quarter ended June 30, 2006, representing a 77% increase over second quarter 2005 revenues of $1.38 billion and a 9% increase over first quarter 2006 revenues of $2.25 billion. Google reports its revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs, or TAC.

That’s right, only 9% quarter over quarter growth. Is this high-flying revenue growth? People are paying a huge premium growth, but top-line growth is slowing down, and expenses are rising.

Options expenses are costing them a ton. $109 million of options for 3 months. Wow do these folks reward themselves for their job.

We expect that the growth rate in capital expenditures in 2006 will be substantially greater than the revenue growth rate for the year. We expect the majority of investment to be focused on IT infrastructure including servers, networking equipment, and data centers, as well as real estate and campus facilities.

Expense are going through the roof and they’re “building” a monster company. They’re scaling up, buying real estate, and hiring. But revenue growth was unimpressive, and online advertising still represents a small portion of total advertising dollars.

Growth at Google seems to coming back down to Earth, despite a very impressive quarter.

If you enjoyed this post, subscribe to the Superior Investor Blog RSS feed!.