Google today announced financial results for the quarter ended June 30, 2015, with revenues of $17.7 billion, with a GAAP net income of $3.9 billion, or $4.93 EPS.
“Our strong Q2 results reflect continued growth across the breadth of our products, most notably core search, where mobile stood out, as well as YouTube and programmatic advertisingâ€Â, said Ruth Porat, CFO of Google.
“We are focused every day on developing big new opportunities across a wide range of businesses. We will do so with great care regarding resource allocation.â€Â
Q2 2015 Financial HighlightsThe following summarizes consolidated financial results for the quarters ended June 30, 2014 and 2015 (in millions, except for per share information; unaudited): [table style=”table-hover”]
Three Months Ended June 30, 2014 Three Months Ended June 30, 2015 Revenues $ 15,955 $ 17,727 Increase in revenues year over year 22 % 11 % Traffic acquisition costs (TAC) $ 3,293 $ 3,377 GAAP operating income $ 4,258 $ 4,825 GAAP operating margin 27 % 27 % Non-GAAP operating income $ 5,138 $ 5,957 Non-GAAP operating margin 32 % 34 % GAAP net income* $ 3,351 $ 3,931 Non-GAAP net income $ 4,104 $ 4,829 GAAP diluted EPS for Class A and B common stock* $ 4.88 $ 4.93 GAAP diluted EPS for Class C capital stock* $ 4.88 $ 6.43 Non-GAAP diluted EPS for Class A and B common stock and Class C capital stock 5.98 $ 6.99 *GAAP net income and diluted EPS include Net Loss from Discontinued Operations for the three months ended June 30, 2014.[/table] Operating income, operating margin, net income, and earnings per share (EPS) are reported on a GAAP and non-GAAP basis. Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense from continuing operations. Non-GAAP net income and non-GAAP diluted EPS exclude SBC expense from continuing operations, net of the related tax benefits, as well as the impact from Net Loss from Discontinued Operations. Non-GAAP diluted EPS also excludes the impact from the adjustment payment to Class C capital stockholders. These non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, and non-GAAP constant currency revenues and growth, are described and reconciled to the corresponding GAAP measures at the end of this release.
Adjustment Payment in Relation to Class C Capital Stock DistributionIn May 2015, Google paid $522 million to the holders of Class C capital stock in the form of approximately 853 thousand shares of Class C capital stock and $47 million of cash in lieu of fractional shares of Class C capital stock, in accordance with the settlement of litigation involving the authorization to distribute Class C capital stock (the Adjustment Payment). The Adjustment Payment was allocated to the numerator for calculating net income per share of Class C capital stock from net income available to all stockholders and the remaining undistributed earnings were allocated on a pro rata basis to Class A and Class B common stock and Class C capital stock based on the number of shares used in the per share computation for each class of stock. The weighted-average share impact of the Adjustment Payment is included in the denominator of both basic and diluted net income per share computations for the three and six months ended June 30, 2015.
Q2 2015 Financial Summary Revenues and MonetizationRevenues by source (in millions; unaudited): [table style=”table-hover”]
Three Months Ended June 30, 2015 Change from Q2 2014 to Q2 2015 (YoY) Change from Q1 2015 to Q2 2015 (QoQ) Google websites $ 12,402 13 % 4 % Google Network Members’ websites 3,621 2 % 1 % Total advertising revenues* 16,023 11 % 3 % Other revenues 1,704 17 % (3) % Revenues $ 17,727 11 % 3 % *Advertising revenues are generally reported on a gross basis, consistent with GAAP, without deducting TAC.[/table] Had foreign exchange rates remained constant from the second quarter of 2014 through the second quarter of 2015, revenues in the second quarter of 2015 would have been $1,103 million higher with a constant currency growth rate of 18% year over year. This includes a foreign exchange rate impact of $1,574 million, offset by hedging gains of $471 million related to our foreign exchange risk management program. Constant currency revenues are presented in the financial tables following this release as well as in the accompanying materials on the Investor Relations website.
Paid clicks and cost-per-click information (unaudited): [table style=”table-hover”]
Change from Q2 2014 to Q2 2015 (YoY) Change from Q1 2015 to Q2 2015 (QoQ) Aggregate paid clicks 18 % 7 % Paid clicks on Google websites 30 % 10 % Paid clicks on Google Network Members’ websites (9) % (2) % Aggregate cost-per-click (11) % (4) % Cost-per-click on Google websites (16) % (5) % Cost-per-click on Google Network Members’ websites (3) % (3) %[/table]
Costs and ExpensesTraffic acquisition costs (TAC), other cost of revenues, operating expenses, stock-based compensation expense, and depreciation and amortization expense (in millions; unaudited): [table style=”table-hover”]
Three Months Ended June 30, 2014 Three Months Ended June 30, 2015 TAC to Google Network Members $ 2,400 $ 2,432 TAC to distribution partners $ 893 $ 945 Total TAC $ 3,293 $ 3,377 TAC to Google Network Members as % of Google Network Members’ revenues 67 % 67 % TAC to distribution partners as % of Google Website revenues 8 % 8 % Total TAC as % of advertising revenues 23 % 21 % Other cost of revenues $ 2,821 $ 3,206 Other cost of revenue as % of revenues 18 % 18 % Operating expenses (other than cost of revenues) $ 5,583 $ 6,319 Operating expenses as % of revenues 35 % 36 % Stock-based compensation expense* $ 880 $ 1,132 Tax benefit related to stock-based compensation expense $ (195) $ (234) Depreciation, amortization, and impairment charges* $ 1,079 $ 1,234 *Included in Cost of revenues and Operating expenses. Excludes impact from discontinued operations for the three months ended June 30, 2014.[/table]
Supplemental Information (in millions except for headcount data; unaudited)[table style=”table-hover”]
Three Months Ended June 30, 2014 Three Months Ended June 30, 2015 Cash, cash equivalents, and marketable securities $ 61,204 $ 69,780 Net cash provided by operating activities $ 5,627 $ 6,985 Capital expenditures* $ 2,646 $ 2,515 Free cash flow $ 2,981 $ 4,470 Effective tax rate 22 % 21 % Headcount 48,584 57,148 *For Q2 2015, capital expenditures are primarily related to production equipment and data center construction.[/table]
Adjustments to Previously Reported Financial InformationIn the second quarter of 2015, Google identified an incorrect classification of certain revenues between legal entities, and as a consequence, revised their income tax expense for periods beginning in 2008 through the first quarter of 2015 in the cumulative amount of $711 million. The income tax amount is not material to the periods impacted and consolidated revenues are not impacted. They have elected to revise previously issued consolidated financial statements in upcoming filings to correct prior periods. Please refer to the supplementary slides posted on the Investor Relations website for revised historical financial information.
In the first quarter of 2015, Google reclassified revenues primarily related to DoubleClick ad serving software revenues from Other revenues to Advertising revenues from Google Network Members’ Websites. Prior period amounts have been adjusted to conform with current period presentation.
Webcast and Conference Call InformationA live audio webcast of Google’s second quarter 2015 earnings release call will be available at investor.google.com/webcast.html. The call begins today at 1:30 PM (PT) / 4:30 PM (ET).
The financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available on that site.
