Google announced results for the first quarter, showing revenues up 26.6 percent to USD 8.58 billion. EPS reached USD 8.08, excluding options costs. Revenues were slightly ahead of market expectations, and profit slightly below, suggesting that on the revenue side the business is doing very well, but costs are rising faster than expected. This led to an over 8 percent fall in the share price the day after the announcement.
Looking at the costs, it's clear these are indeed growing faster than sales. R&D rose by 50 percent, and sales and marketing was up 69 percent. As a result, R&D rose to 14 percent of revenues, from 12 percent a year ago, and S&M increased to 12 percent, from 9 percent. The 10 percent increase in salaries for the entire staff, aimed at retaining important employees, is also clearly visible. Google has around 26,000 employees, almost 2,000 more than at the end of 2010, which of course also increases costs. Its cash position, including securities, was USD 36.7 billion at the end of Q1, or USD 1.7 billion more than three months earlier.
The various revenue sources show high growth in advertising income on its own sites (up 32.4 percent, partly thanks to YouTube), lower growth at AdSense partners (+19.2%) and a fall in other income (down 10.3 percent, due to the contribution from the Nexus One in Q1 2010).
Google sets a clear example: costs come before sales. The company is investing heavily, taking on a lot of new staff, and spending significantly on marketing, for example to promote Chrome. The question is whether a lot is being spent on acquisitions as well. Recent reports suggest Google was willing to pay billions for Skype, Groupon and Twitter, but the company clearly has a limit.
Google faces sufficient risks: competition from Apple, Facebook and Bing, how can it respond in the 'social' market? But there are also opportunities: Android, Chrome, YouTube, mobile, display advertising, payments. A few operational highlights: Google revealed that Android downloads are up 50 percent and over 3 billion apps in total have been downloaded; there are currently around 350,000 Android devices activated each day; revenues at YouTube weren't disclosed but the figure has doubled and there are now 20,000 content partners for the site; and Chrome has 120 million daily users.
The recovery in revenue growth to 27 percent is notable, as in Q1 2009 it was slowing, although on a quarterly basis. The cash-generating capacity is also remarkable, as underlined by the cash position of USD 36.7 billion. At the moment, the company seems to have more opportunities than threats.
