Articles, Blog

Google Q2 2011 Earnings Call

February 8, 2020


>>Please standby. We’re about to begin. Good
day, and welcome, everyone to the Google Inc. Second Quarter 2011 Earnings Conference Call.
This call is being recorded. At this time, I’d like to turn the call over to Jane Penner,
Senior Manager, Investor Relations. Please go ahead, ma’am.
>>PENNER: Good afternoon everyone and welcome to today’s Second Quarter 2011 Earnings Conference
Call. With us are Larry Page, Chief Executive Officer; Patrrick Pichette, Senior Vice President
and Chief Financial Officer; Susan Wojcicki, Senior Vice President, Advertising; Nikesh
Arora, Senior Vice President and Chief Business Officer. First, Larry, Patrick, Nikesh and
Susan will provide us with results on the quarter. Also, as you know, we now distribute
our earnings release through our Investor Relations website located at investor.google.com.
So please to our IR website for earnings releases, as well as supplementary slides that accompany
the call. This call is also being webcast from investor.google.com. A replay of the
call will be available on our website in a few hours. So let me quickly cover the Safe
Harbor. Some of the statements that we make today may be considered forward-looking, including
statements regarding Google’s future investments in our long-term growth and innovation, the
expected performance of our business and our expected level of capital expenditures. These
statements involve a number of risks and uncertainties that could cause actual results to differ
materially. Please note that these forward-looking statements reflect our opinions only as of
the date of this presentation, and we undertake no obligation to revise or publicly release
the results of any revisions to these forward-looking statements in light of new information or
future events. Please refer to our SEC filings for a more detailed description of the risk
factors that may affect our results. Please note that certain financial measures that
we use on this call such as operating income and operating margin are also expressed in
a non-GAAP basis–on a non-GAAP basis, and have been adjusted to exclude charges related
to stock-based compensation. We have also adjusted our net cash provided by operating
activities to remove capital expenditures, which we refer to as free cash flow. Our GAAP
results and reconciliations of non-GAAP to GAAP measures can be found in our earnings
press release. With that, I will now turn the call over to Larry.
>>PAGE: Well, thank you and good afternoon, everyone. Thanks for joining us today. It’s
really exciting to be with you today and share directly with you the progress we have made
in my first quarter as CEO. As you will see from our press release, we had a great quarter,
which revenue up by 32% year-on-year and a new record for quarterly revenue at over $9
billion. We’ve substantially increased our velocity and execution this quarter, which
is a key goal of mine since taking over as CEO. So I created a new product focus management
structure, with clear leader responsible for each area. New management team is working
together fabulously and has already achieved a lot in just these three months. First of
all, I want to talk about Google+, which we launched a field trial invitation only. Our
goal at Google+ is to make sharing on the web like sharing in real-life, as well as
to improve the overall Google experience. Circles lets you choose with precision who
you’re sharing with. Not surprisingly, this has been very well received, because in real-life,
we share different things with different people. Hangouts allows for serendipitous interactions.
Like in real-life, when you run into a few friends, gives you seamless and fun multi-user
video, and it’s really amazing. Last quarter, we launched the +1 button in search results
and ads, enabling users to recommend stuff they like and to have those recommendations
show up in the search results of people they know. This quarter, we released the +1 buttons
to the entire web and many sites like Huffington Post, The Washington Post and Best Buy has
added +1 buttons. Google + is still in field trial with limited access as we scale the
system. Users have to be invited and sign up with a profile in order to use it. However,
the growth on Google+ has been great, and I’m excited to release some new metrics for
you today. Over 10 million people have joined Google+. That’s a great achievement for the
team. There’s also a ton of activity, and we are seeing over one billion items shared
and received in a single day. Our +1 button is already all over the web, and it’s being
served 2.3 billion times a day. So while we still have a lot of work still to do, we are
really excited about our progress with Google+. Google+ is also a great example of another
focus of mine, beautiful products that are simple and intuitive to use, and actually
was one of the first products to contain our new visual redesign. We also launched that
beautiful, consistent and simpler design on our homepage, Gmail and calendar, with many
more products soon to come. Reader focus has also been another big feature for me this
quarter. More wood behind fewer arrows. And last month, we announced that we’ll be closing
Google Health and Google PowerMeter. We’ve also done substantial internal work, simplifying
and streamlining are product line. While much of that work has not yet become visible externally,
I’m very happy with our progress here. Focus and prioritization are crucial given our amazing
opportunities. Indeed, I see more opportunities for Google today than ever before, because
believe it or not, we are still in the very early stages of what we want to do. Even in
Search, which we’ve been working on for 12 years, there’s never been more important changes
to make. For example, this quarter, we launched a pilot that shows an author’s name and picture
in search results; making it easier for users to find things they trust. Of course, when
we started doing Search, people thought we were crazy. They said there was no money to
be made in search over and above a bit of banner advertising. Most new Internet businesses
have had that same criticism. Fast-forward to today, it feels like we’re watching the
same movie again in slow motion. We have tremendous new businesses being viewed as crazy. Android,
I actually have a new metric to report in Android of 550,000 phones activated a day.
And that’s a huge number, even by Google standards. Chrome is the fastest growing browser. We
have over 160 million users. Now, people rightly ask, “How will we monetize these businesses?”
And of course, I understand the need to balance the short-term with the longer-term needs
because our revenues in growth serve as the engine that funds our renovation. But our
merging high usage products concentrates can generate huge new businesses for Google in
the long run, just like Search. And we have tons of experience monetizing successful products
over time. Well run technology businesses with tremendous consumer usage make a lot
of money over the long term. And I think about our products in three separate categories:
First, there is Search in our Ads products, the core driver of revenue for the company.
And Nikesh and Susan are going to talk more about Ads later in the call. Next, we have
products that are employing high consumer success: YouTube, Android and Chrome. We are
investing in these in order to optimize their long-term success. Then we have our new products,
Google+ in commerce and local. We are investing in them to drive innovation and adoption.
Overall, we are focused on long-term, absolute profit and growth, as we have always been.
And I will continue to have tight financial management we have had in the last two years,
even as we were making significant investments in our future. I’d like to finish on our people.
Great companies are no greater than the efforts and ingenuity of their people. We’re continuing
to hire the best. Keeping them happy and well-rewarded is crucial to our future. Many of you will
be interested in hiring; whether we hired a few hundred more or less than you expected
this quarter. But we will optimize headcount for the long-term in the opportunities we
see. I’m happy with the investments we’ve made in people, but we’re probably even a
little ahead of where we need to be with headcount growth at the edge of what’s manageable now.
Easy to focus on things we do that are speculative, e.g. driverless cars. But we spend the vast
majority of our resource on the core products. We may have a few small speculative projects
happening at any given time, but we’re very careful stewards of shareholder money. We’re
not betting the farm on this stuff. All of us at Google want to create services that
people in the world use twice a day just like a toothbrush. And we strive to make those
services beautiful, simple and easy to use. That way, we can provide huge benefit to the
world. We’ve made a good start, but we’re only a 1% of what’s possible. Google is just
getting started, and that’s why I’m here, working hard to lead the company in the next
level. Thank you. And again, we had a great quarter. Now over to Patrick for the financial
results.>>PICHETTE: Thank you, Larry. Thank you,
everybody. Thanks for joining us. And Larry is going to stay with us for the Q&A. So I
just wanted to make sure that everybody knows he’s not going anywhere. Okay, so let’s go
through the number. We had obviously an excellent quarter with 32% year-over-year revenue growth
in Q2, and it clearly demonstrate the continuing power of Goggle’s product innovation, but
also the relentless momentum of the digital economy. The strength continues to be driven
by our core desktop search ads, but also increasingly, by new emerging areas just like the Mobile,
Display, including YouTube and Enterprise that we regularly talk about. So let’s turn
to the specifics of our performance in the quarter. Growth revenue grew 32% year-over-year
and we’ve reached $9 billion in revenue, 5% quarter-over-quarter growth as well. Note
that while currency fluctuation boosted our revenue somewhat, even in constant FX terms,
our growth rates remain strong, particularly in what tends to be a seasonally slower quarter.
Google website revenue was up 39% year-over-year to $6.2 billion and 6% quarter-over-quarter,
with strength across most major geographies and verticals. Goggle Network revenue was
also up 20% year-over-year to $2.5 billion, 2% quarter-over-quarter. Network revenue is
again negatively impacted by the Search quality improvements made during the latter part of
Q1, as you will remember, and know that Q2 reflects a full quarter of this impact. This
impact is to be expected in the short-term, given that it is now different publishers
that are receiving traffic and may not have yet optimized their sites for our advertising
programs. Other revenue was also up 20% year-over-year, just $310 million and 15% quarter-over-quarter.
Our global aggregate paid click growth was strong, up 18% and down to 2% quarter-over-quarter.
Our UI changes to search ads such as BizURL drove year-over-year click growth in Q2, along
with the ongoing and accelerating shift from offline to online. The slight decline quarter-over-quarter
is just typically consistent with our summer seasonality. Aggregate cost-per-click growth
was also very healthy, up 12% year-over-year and up 6% quarter-over-quarter. Note that
FX also had a positive impact on CPC, and remember too that this is an aggregate number
that includes both Goggle.com and our AdSense properties. Turning to our geographic performance,
the U.S. and the Rest of the World are growing both at very good pace, and our results reflect
that. While U.K. still continues to lag slightly in the global recovery, year-over-year and
quarter-over-quarter growth in Q2 continues to show signs of acceleration in the U.K.
as well. So revenue from the U.S. was up 26% year-over-year to $4.2 billion. And in our
earning slides, which you can find on our Investor Relations website, you’ll see that
we’ve broken down our revenue by U.S., U.K. and Rest of the World to show the impacts
of FX and the benefits of our hedging programs. So please refer to those slides for the exact
calculations. Non-U.S. revenue accounted for 54% of our total revenue or $4.9 billion,
up 38% year-over-year, which includes only $4 million of benefits from hedging programs;
compared to last year where we had $79 million of benefits for Q2. Year-over-year growth
in fixed FX would have been 29% versus the 30% I just mentioned. Japan’s future revenue
was again negatively impacted by the aftermath of the disaster there; but there again, we
see signs of faster recovery, faster than they expected at first. The U.K. was up 27%
year-over-year to $976 million, and year-over-year growth in fixed FX was still have been a healthy
19% for the U.K. Let me turn to expenses. Traffic Acquisition Costs were $2.1 billion
or 24.2% of total advertising revenue. Our other cost of revenue was $1.1 billion including
stock-based compensation of $51 million. And finally, our operating expenses, which exclude
stock-based compensation totaled $2.6 billion. The stock-based compensation totaled $384
million in Q2. The increase in year-over-year in OpEx was primarily due to payroll, increased
advertising and promotional spend and also professional services. So as a result, our
non-GAAP operating profit was $3.3 billion in Q2 which exclude the stock-based compensation,
resulting in a non-GAAP operating margin of 36.7%. Headcount was up approximately 2,450
versus Q1 ending the quarter with 28,768 full-time employees. When we exclude ITA adds of roughly
450, the net headcount growth is roughly similar to Q1. Our effective tax rate was 19% in Q2,
and the effective tax rate is down due to the mix of earnings between domestic and international
subsidiaries, as well as our hedges. Let me turn now to cash management. In Other Income
and Expense, our result was $204 million for Q2, a solid portfolio management performance
from our team–was–which like every quarter, is offset by the impact of our hedging expenses
associated with FaS 133, which it’s–in itself was also significantly lower in Q2 gave us
these great results. For more detail on OI&E, again, please refer to the slides that accompany
this call on our IR website. Operating cash flow, very strong, $3.5 billion for Q2. CapEx
for the quarter was $970 million versus last quarter of $890 million, so pretty much in
line. The majority of our CapEx spend in Q2 was related to facilities, expenses, and production
equipment. And regarding specifically this facility expenses, like last quarter, we just
happened to have a great opportunity in Q2 to purchase buildings in Dublin and in Mountain
View, and we took that opportunity. As a reminder, we’ll continue to make significant CapEx investments,
and these have shown to be lumpy from quarter to quarter depending on when we’re able to
actually make these investments. But overall, we can be nothing but pleased with our free
cash flow which was $2.6 billion for Q2. As Larry mentioned earlier, we continue to deliver
growth with a disciplined agenda. This means investing and making sure that our resources
are deployed wisely with focus and a balance between that short and long-term that Larry
covered. So with those financial highlights covered, I’m going to turn it over to Nikesh
who will actually cover now our sales performance in the quarter. Here you go, Nikesh.
>>ARORA: Thank you, Patrick. I’m going to give you a quick update on our business activities
which spans sales, partnership marketing, and customer service around the world in support
of our product and revenue. Let me start by focusing on the first priority of our sales
team, the need to continue to drive revenue growth in core and new businesses. This quarter,
we continue to drive revenues in our core areas like Search, as well as new areas like
Display, Mobile, and Enterprise. Core Search and Desktop has done very well this quarter,
with Google.com accelerating and our large advertisers continuing to spend more as they
see more value in Search. We’ve also been able to drive tremendous focus on small advertisers
around the world, with programs like GXPO which I will talk about slightly later. Broadly,
however, our sales teams are getting better in tailoring Integrated Solutions for our
clients, using the full area of our advertising products. These solutions create greater opportunities
to improve our customers marketing ROI. Clients have used Search to focus their targeting
capabilities, such as audience and topic targeting to help improve the marketing effectiveness.
Some of our most successful Search clients include people like GM and EgyptAir. On the
other hand, in addition to our core desktop Search business, we continue to be very excited
about our investments in Display and Mobile. Let me first focus on Display. We’ve seen
continued healthy growth in our Display product space to across all fronts: Advertiser, publisher
and technology solutions. Ninety-eight of the top AdAge 100 advertisers have bought
Display across YouTube and the Google Display Network this quarter. Customers continue to
use our DoubleClick products and we are happy with the increased use for the DoubleClick
Ad Exchange and Invite Media for ad buying. With our announcements to acquire Admeld,
we hope to deliver even better solutions to our publishers and buyers. Continuing on Display–on
YouTube, where we have over three billion daily views, we have had great success bringing
popular content to our users, further increasing audience engagement. Take for example, our
April broadcast of the Royal Wedding which generated 100 million YouTube views. Our range
of platform and content means that advertisers are beginning to use them for superior branding
solutions. A great example of our branding products in action was T-Mobile’s launch of
the Samsung S4G on YouTube. In this campaign, T-Mobile took over YouTube running ads in
their homepage, watch page, Mobile. That particular campaign helped them reach 46 million unique
users. Continuing to talk about revenues, our Mobile business continues to be another
area of robust growth. The number which Larry just shared of 550,000 Android, that and the
success of smartphones and general Mobile Data devices around the world is acting as
an accelerator to our Mobile advertising efforts. Let me just take one quick example. One format
which is launched by Susan’s team called Click-to-Call or Click-to-Share has been particularly successful.
Unilever is a great use case of these formats. They integrated our AdMob product into a very
large campaign of launching a new product to use the banner to drive traffic to a campaign
Mobile site and achieve unprecedented results with almost 700,000 unique visitors accessing
their content. Another leg of our revenues is the Enterprise Business. We’ve seen great
results in enterprise as well, in particular apps for business continues to grow as organizations
move to the cloud. We’ve had key wins at Intercontinental Hotels, [INDISTINCT] State of Wyoming. In
addition to that, some small simple changes in our product side have allowed us to tremendously
accelerate Google Apps for small businesses. Looking at our revenues from a slightly different
perspective, geographies and customer segments, we’ve seen strong growth in regions and across
customers of all sizes. First, let’s take a look at geographies. We maintained our strength
in large, mature countries while we accelerated in emerging ones. Now, a large majority of
countries even though some are facing economic challenges, this secular trend of online advertising
and the effectiveness of the teams to continue to drive healthy revenue growth is showing
great results. Several countries are worth noting. As Patrick mentioned, the U.K. has
accelerated this quarter with strong growth by small advertisers. In Japan, we’ve seen
recovery, driven primarily by Display and Mobile spending by large advertisers. Our
focused execution in Canada and Spain has led to these markets beginning to show recovery.
Finally, we saw tremendous growth in emerging countries especially Brazil and Russia, where
our Display products are getting strong adoption from advertisers. Across each country, we
focus to improving the product knowledge and selling capability of our sales force. Our
frontline teams can now sell Search, Display, and Mobile to the needs of our customers,
which is a great trend we’re seeing of integrated products selling across multiple Mobile online–Mobile
ad formats. As a result, we’re becoming better advisors in the digital space for our large
advertisers. For example, Nike, Sony Ericsson, Telefonica; all of them partnered with us
to create integrated solutions down there, sponsorship of Copa América. Outside of revenue,
one key area of responsibility is marketing. And we continue to use marketing as a strategic
blipper. We use marketing to both drive customer acquisitions as well as the usage of our key
consumer products. I’m very proud of my team’s work on getting businesses online, GXPO as
I mentioned in Q2. We successfully launched in Brazil, Canada, Australia, Thailand. The
objective is to try and bring another million small, medium businesses across 20 countries
online for the first time. As you know, more advertisers get more queries, have more ad
serves against it resulting in a more robust option for us. In addition, we also saw strong
results from our own advertising campaigns, including the most recent one around Google
Chrome. The web is what you make of it. I’m sure many of you might have seen Justin Bieber
or Lady Gaga in these campaigns. These campaigns have shown tremendous effectiveness and have
also convinced more users to switch to the Chrome browser. Last but not the least, I
want to spend a quick minute on talking about something we’re more and more passionate about,
which is continuing to drive better customer satisfaction on an advertiser front. We continue
to improve service and support across all customer segments. We’ve started providing
large set of advertisers proactive full support and on boarding help, which includes signing
up for campaign building, signing up and getting assistance, as well as free full support after
they become a customer of ours. As a result of these initiatives and others, spending
by our small businesses continue to accelerate. Overall, as Patrick and Larry have mentioned,
Q2 was a great quarter. I’m very proud of the wok of our teams across the world in various
countries. We have done a tremendous amount of effort to serve our customers, partners
and users. Now, I’m going to turn over to my business partner, Susan, who is going to
talk about all the positive impact that our products will have this quarter.
>>WOJCICKI: Thanks, Nikesh. Larry started the call by talking about a few of the quarter’s
product highlight and I’d like to cover some more of them. So let me begin with Search.
We’re always looking for new ways to help our users find answers to their questions.
This quarter, we brought two of the most popular mobile search innovations to the desktop;
Voice Search and Search by Image. Voice Search traffic for Mobile devices is up six times
in the past year. So we thought this would be a useful feature for our desktop users
as well. It’s especially useful for searches that you know how to say but not how–not
how to spell like Bolognese sauce or Schenectady, New York; neither of which I could easily
spell. With Search by Image, you can draw out pictures of places, art, or even mysterious
creatures like the Loch Ness Monster right into the Google search box, and Google can
identify and tell you about those pictures. In addition to these changes, we released
about 100 other quality improvements to the Search algorithm. More and more people are
searching and using apps from mobile phones where Android has had terrific momentum. There
are now 135 million Android devices that have been activated in total, up from 100 million
just two months ago. There are also now over 400 different Android devices available globally.
Android market is also picking up momentum. It has over 250,000 different apps, and users
have downloaded apps over 6 billion times, which is double the downloads from just a
few months ago. We’re expanding beyond apps too. This week, we started renting movies
and selling books on phones from Android market. And earlier in Q2, we launched Music Beta,
which lets users upload their personal music collections and playlist to the cloud. All
of this media, movies, music, books and apps, are instantly available on your Android devices,
no cable required. Smartphones are also becoming key to the shopping experience. Making shopping
mobile and local is a vision behind Google Wallet and Google Offers. We announced the
Google Wallet mobile app in May in partnership with Citi, MasterCard, Sprint, and First Data;
and we are now testing it in field trials. And as of this week, Google Offers are available
in San Francisco, Oakland, New York, and Portland. And now on to Ads, which is the product area
that I manage. On the Search Ads side, we had a great quarter for quality with over
50 ads quality improvements and a big upgrade to the ads relevancy system. We launched the
latest in a series of small tweaks for a search add format. This format, this quarter, we
added the landing URL to the headline so that users know where click will take them. This
may seem like a small thing, but we launched several of these small tweaks over the past
year and cumulatively, they have had a big impact. There were also a lot of quality improvements
across our Display Network; over 20 launches, making it one of our strongest quarters from
a quality perspective. In general, Display advertising is moving to a scientific model
based on technologies like real-time bidding. But this technology, when you land on a web
page, advertisers decide what they want to pay for the ad space, and then auction is
held. And the best ad is matched with the publisher’s ad space. It’s a lot more efficient.
It provides better performance for both advertisers and publishers, and more relevant ads for
users. Real-time bidding is an important technology shift that we are investing heavily in. Invite
Media, which is the buying platform for advertisers and agencies that we bought last year, has
doubled its client list in that–in the last year, with over five times growth outside
of the U.S. Mobile Display is starting to take off too with traffic on the AdMob network
up more than three and a half times in the past year. More and more of that traffic is
coming from tablets, so we launched a new set of formats designed specifically for tablets.
These formats are web-based. They use HTML, and brand advertisers don’t need to make different
versions of their ads for different models. Nikesh also mentioned our great momentum with
YouTube where we’re getting strong performance from the YouTube skippable ads. Because users
can choose to skip these in-stream ads, the people who choose to watch them are much more
engaged. More and more advertisers are choosing to make their ads skippable. And now, over
1/3 of in-stream ads on YouTube are in a skippable format, which is a pretty remarkable stat
given that we launched this format in December. Finally, I’d like to update our progress on
Chrome. Larry mentioned how we passed 160 million users which is more than double year-on-year.
This quarter, our partner Samsung and Acer Search have been Chromebooks in seven countries.
Chromebooks are designed to be fast, to just work, and to get better over time. Thanks
to our automatic updates. And they’re now available through Amazon and Best Buy. Chromebooks
are also available for schools and businesses via subscription model. The subscription includes
Chromebooks, of course, administration, warranty, and support, starting at $20 a month. So overall,
it was a very busy quarter for us. But maybe the coolest thing we did was the Les Paul
doodle we ran last month. It was a guitar you could actually play, and users recorded
over 40 million songs while it was up. That’s about five years of music. I’m looking forward
to hearing your questions and comments. And for now, back to Patrick.
>>PICHETTE: Thank you, Susan. So Jamie, our operator, is going to help us through this.
Jamie, you can just set up the call for Q&A. And as I said, we’ll have Susan, Nikesh, Larry,
and myself to answer any questions you may have.
>>Thank you, sir. To ask a question, please signal by pressing the star key followed by
the digit ones. If you are using a speakerphone toady, please disengage your mute function
or pick up your handset to ensure that your signal reaches our equipment. If you find
that your question has already been asked and answered, you may remove yourself from
Q by pressing star 2. Again, that is star 1 on your touchtone telephone to signal with
a question. And we’ll take our first question from Spencer Wang with Credit Suisse.
>>WANG: Thanks. Good afternoon. Two quick questions, if I could. First, for Patrick
or perhaps Nikesh. International revenue growth as you mentioned was really strong. I was
wondering if you could just provide a little bit more color on perhaps what’s driving that?
If you could give us a sense of how much of that is core Search versus some of the newer
initiatives like Mobile, YouTube, and Display. And then the second question is for Larry.
I was wondering if you can just talk a little bit, Larry, about the patent strategy. Our
understanding is you guys have about 650 patents. So just given the Oracle situation, I was
wondering if you could talk about the patent strategy to ensure that you guys can continue
to innovate going forward. Thanks.>>PICHETTE: So I’ll let Nikesh answer the
first part of the question, and then Larry will talk about the patent issues.
>>ARORA: As I mentioned in my prepared remarks that we’ve seen tremendous growth across pretty
much all product areas. So the growth you’re seeing international is driven by Mobile,
by Display, by Search. Clearly, international is not one market. There are many different
countries so we have seen different effects in different markets. You know, places like
Japan, as I said, have been driven more by Display and Mobile. Various parts of Asia
are just getting up the curve for us on Display and are strong contributors in Mobile. Having
said that, you know, Russia has been very strong for us. Brazil has been very strong
for us. Brazil in the back of Mobile and Display as well, and as well as core Search. So if
you think about what we’re seeing, we’re seeing more and more a pickup of Display and Mobile
because we have established sales team are pretty much on almost every major market around
the world to help sell Display. And the Mobile tick up based on tick up of smartphones and
Android et cetera is helping that trend as well. In addition to that, a lot of effort
has gone in to bringing small businesses online, and that increases the number of advertisers
in many international markets. As you get more advertisers in international markets,
it has a very positive impact on our RPMs in those markets. So we’re seeing that effect
as well.>>PAGE: …for your question on Android and
patents and so on. You know, obviously, we have a number of intellectual property in
progress too, not just already issued. And I must just say, Android’s really on a tear,
you know. I mentioned there were over 1500–550,000 new Android daily activations previously.
And there’s over 400 such devices, 39 OEMs, 231 carriers in 123 countries, and over 78
open handset alliance partners. And that velocity is only increasing. And, of course, despite
the efforts of some of our competitors, there hasn’t been any slowdown in any of those things.
And, you know, partners and developers are continuing to expand the Android ecosystem.
And essentially, of course, we’re really committed to Android and continued to support that platform
and ecosystem and do it in a cost-effective manner.
>>Thanks, Larry. Let’s go to the next question. And thanks, Spencer, for your question.
>>And we’ll take our next question from Mark Mahaney with Citi.
>>MAHANEY: Two questions, Larry. Could you talk about what you have maybe put in to improve
the velocity of decision-making? And as you step back and think about the management improvements
you could see over the next year or two, how significant do you think–how much better–how
much more efficiently do you think Google could be run than what we’ve seen maybe over
the last two or three years? And then Susan, real quickly, social search signals, how important
do you think they are now? How key are they, you know–is that–how much of that is Google+’s
strategy for trying to, you know, make the core search results more relevant? Thanks.
>>PAGE: [INDISTINCT] Thanks. This is Larry. Sorry about that. I’m super excited about
the changes we’ve made. And I think, you know, as companies scale, we always change how we’re
running the company over time. So I think, you know, we have much more of a product focused
structure now, which I’m very excited about and talked about it. And I think that, you
know, maintaining and improving our velocity and execution is a really noble goal for us.
And it requires always a lot of work in companies. And I think, you know, that’s super important
direction for us, and I’m really excited about it.
>>PICHETTE: Susan, on social?>>WOJCICKI: Yes. So I think the first thing
I would say about social is that we’re very early right now. And really our focus with
Google+ will be to focus on making sure that we have a wonderful consumer and user experience.
From a targeting perspective, there are a number of signals that we use right now. Obviously,
keyword on Search, contextual, interspaced advertising, demographics, so social–and
social signals overtime can be an–can be an important part of that. But it would be
one of multiple ways that we actually do targeting. When we did rollout Google+, we do have pluses
on all the ads just as we do on search results. So if a user does click on it and someone
on their circle has actually does a query and triggers that, then there will be social
annotations, which will be useful information for the user to see that their friend has
+1-ed that ad.>>Thank you, Susan. Thank you, Larry.
>>Thanks, Mark, for your question. We’ll go to the next question, Jamie.
>>And we’ll go next to Ben Schachter with Macquarie.
>>SCHACHTER: Hey, guys. Congratulations on the execution and the launch of Google+. Larry,
at a high-level, what, if any, are some of the key differences on how you think about
managing specifically the economic model of the company today versus when Eric was CEO?
And specifically any changes to target margins, revenue growth targets, et cetera? And then
separately, on Mobile Search specifically, it’s clearly been successful in terms of search
share. But when we’re trying to figure out the overall impact to net revenue in kind
of balancing out some of the positives like incremental searches and share gains and higher
click-through rates, but also having the headwinds of TAC payments to partners and lower CPCs,
how should we think about the overall net impact of Mobile to the business? Thanks.
>>PICHETTE: So why don’t I–why don’t I take the second part of that question, and then
Larry can talk about the economic model versus in the context of what you said. But for Mobile
search, it’s–you have to go back and focus on what we focused on. Build, you know, businesses
that are going to be billion-dollar businesses and that actually contribute significant operating
dollar margins. I mean, these are businesses that scale to a humongous scale when they’re–when,
you know–as they grow. So for us, that is the focus that we have. And the second piece
in the specifics of Mobile is, we really see Mobile a bit like Search was in 2001, 2002,
2003. All these formats are so new that, you know, you know that there’s so much more room
for optimization on top of it. So it is in fact a bit of a mistake to kind of say, “Okay,
today, whatever we have is a good proxy for what the future will look like.” So–and that’s
why we’re excited about it. And that’s why we focus so much on Mobile. Now, for the economic
model and how we run the company, maybe Larry, your thoughts on that?
>>PAGE: Absolutely. Thanks for the question. I think, you know, certainly Eric is a great
partner and leader for–of, you know–for me and for Google for the last 10 years, and
continues to play a big part–a big part in the company. So I don’t think there’s–like
we said before, there’s no major changes in what we’re doing. And I’ll reiterate maybe
a little bit and add a little detail to what I already said. I think about really in our
products in three separate categories. And, you know, first, through Search and our Ads
business, which is the core driver of revenue for the company. You know, we really invest
in that, we work hard on it. Next, we have businesses that are enjoying, you know, really
high consumer success. You know, for example; YouTube, Android, and Chrome. And we invest
in those in order to optimize really their long-term success. And we have some new businesses
on our Google+, Commerce, and Local that we’re really excited about and–on a pretty early
stage and, you know, those things we invest in as well. And, you know, we don’t do things
that we don’t think will generate really big returns over time. So we were optimizing for
our long-term economic success. But we do have these very different buckets of things
that we work on.>>Thanks for your answer, Larry. Thanks for
your question, Ben. Jamie, let’s go to the next question please.
>>And we’ll go next to Ross Sandler with RBC.
>>SANDLER: Hey, guys. Just two questions. First, on Google+; and then second, on Google
Offers. So on Plus, we haven’t seen the real integration. I know it’s only a couple of
weeks old; but with Google’s kind of core competencies around Search and other things
that you’ve been very successful at in the past. So can you talk about, you know, plans
on integrating some of Google’s core strengths into Google+ to further, I guess, differentiate
the products from other services that are out there? And then, on Google Offers, can
you just talk about your overall strategy in terms of rolling out offers? You’re in
four cities today. How fast do you think you’re going to accelerate into these newer cities?
And is international territories also on the roadmap and the near-term for Offers? Thanks.
>>PAGE: Thanks for your question. I’ll answer the first part. This is Larry. We are–Google+
actually has a lot of interesting product integration, you know. The black Google bar
that you see is an entry point and notification point for Plus across, you know, basically
all of our properties. And we’re really excited about that. And think it’s a big deal. We’re
just proud to say, there are many things that you would do with Plus and with +1 that affect
what you would see in search results. Like I mentioned, if you use +1 something, your
friends will see it in search. So absolutely, and I hope it was clear that was our strategy.
But we are very focused on improving all of Google, improving the sharing and identity
across all of Google.>>PICHETTE: Maybe Nikesh can give a comment
on the rollout for Google Offers. Here we go.
>>ARORA: Thanks, Patrick. We won’t give out details on how we rollout our Offers strategy.
I think Susan said it very well in our overall strategy, because Offers for us is not just
an isolated event. It is a combined, a bit of a commerce offering, which includes their
mobile phone and other things we talked about. We were very happy with the rollout we’ve
had in the one city where we’ve been for a while, which is Portland. And we just rolled
out two more cities earlier this week. So from that perspective, you can expect us to
roll out other cities, but we’re going to be testing and looking at the models to see
what’s working and what’s not working because we want to build the next version of how we
rollout an Offers product. So stay tuned.>>Great. Thanks. Thanks for your question,
Ross. Jamie, our next question please?>>We’ll go next to Brian Pitz with UBS.
>>PITZ: Great. Thanks. And two quick questions. As we note the proliferation of the newer,
richer ad formats like product image ads that we’re seeing more and more of on your site,
can you help us better understand the impact on paid click growth specifically? And then
separately, can you also give us a little more color on some of the Panda and quality
changes you’re doing on the network? Any commentary on how much impact to growth of AdSense that
had this quarter and how long should we expect to see, you know, more than expected impact
from continued quality changes? Thanks.>>PICHETTE: Why don’t I let, actually, Susan
tackle those questions? Susan?>>WOJCICKI: Great. Yes, on the richer ad
formats, we see a few important opportunities for us. And what we feel about them is it
gives us the opportunity to make those ads better for the users. And as we can create
better experiences for our users, they’re more likely to have the information that a
user wants. And so what we’d hope to see is a click-through increase over time. And hopefully,
for the advertiser on the backend, a better conversion. From–in terms of click growth
and what’s actually driving the click growth that we see, it’s a number of factors. One
of them is always going to be query growth that we have. Second thing would have to–would
be on improvements that we have to our backend quality models. So the better the quality
model is, the more likely we are to actually match the right advertisement to the right
user. And we had a number of good ads, as I mentioned, you know–not just good, we had
great ads quality launches this quarter, and a number of ad formats that made the ads more
readable. And by making them more readable, the users are more likely to click on them.
And that turns into click growth. And then on the last question that you had, which was
Panda. Panda was a change made by the search team with the goal of improving overall search
experience. There was, as we talked about last time, some negative effects from the
AdSense partners. However, Panda does–or any search quality that we make, does have
a change of ranking; which means that there are different sites that wind up getting traffic.
And that–those sites may adjust their monetization strategy over time. And so, it may just take
some time for that to actually balance out. And also, in terms of the last question, we
don’t really comment about future changes that we’re going to make, but we are always
thinking about the right way to continue to improve the search results for our users.
>>PICHETTE: Yes. Panda is a–and once again a great example of putting the user first
ends up benefiting everybody in the end; the publishers, the advertisers, and the users.
Thanks for your question, Brian. Let’s go to our next question please.
>>And we’ll go next to Justin Post with Bank of America Merrill Lynch.
>>POST: great. A couple of questions. Larry, thanks for joining the call. And while we
have you, I’m just going to ask you a question I get all the time. How focused is senior
management on the stock either as an employee retention tool or a measure of management’s
performance over, say a three to five-year period? And then–and then secondly, if I
could just ask about the local opportunity; it looks like a lot of launches happening
for Google. Do you see it as a different ad market than your current search ad market?
And how might your model be different than some of the larger players in that market
currently? Thank you.>>PAGE: you know, Justin, thank you very
much for your question. This is Larry. I think, well, you know, we have all those–we have
a lot of stuffs to do here at Google; and unfortunately, one of the things we don’t
get to decide is our stock price. So you all are in charge of that. I think we are–and
so, we really focus on our long-term success as a business and the kind of things were
mentioned already are absolute, overall profitability over the long-term and our revenue growth.
And so, we tend to focus much more on that, with a much more long-term view than we do
on our stock price.>>PICHETTE: Susan, views on the difference
and the similarities between the local and our traditional ads market.
>>WOJCICKI: You know, Local can be thought about two different ways. Local can be the
large retailers who have many different points of presence. So, for example, Starbucks or
Pizza Hut or any retailer which is a large holding company or one large retailer, but
then has many different local points of presence, and then there’s a separate bucket which are
the small, Joe’s Coffee Shop example. And both of them need different things from a
product perspective in order to be able to advertise more broadly. And we are working
in both buckets to solve and make them advertisers on AdWords with solutions that will work for
them. The large ones need functionality of how do I run a campaign in all of these different
locations with different keywords, different pricing. And so we’re working to enable location
in our AdWords campaigns when you’re managing a large account to make that much easier.
The Joe’s Coffee Shop example, what we’re working on is enabling signing up for AdWords
to be a much easier experience. So we actually have a product that we released this quarter
called Google Boost. And Boost product is a one-page, 5-minute sign-up for advertisers.
It’s very easy to sign-up. We haven’t marketed it a lot right now. We–but we have seen good
success with advertisers. And we’re hoping to make that more known to our advertisers.
>>PICHETTE: The last piece in the puzzle is obviously, Susan, Mobile, which is completely
integrated from an ads perspective and targeting as well.
>>WOJCICKI: Yes. I mean, so that the other thing too is we would like to make all of
our products be accessible from a Mobile perspective. Click-to-Call would be an example. Click-to-Call
is really nice so that if someone, for example, is local, walking down the street, they can
actually call. But it’s also really nice from the small retailer perspective, because they
can understand that they’re getting a call and they’re getting a lead; which for them
would be much more tangible than actually a click to their page. So we’re investing
very heavily in that in terms of Click-to-Call technology and the good tracking for the local
advertisers.>>Thank you. And thanks Justin for your questions.
Let’s go to our next question please.>>And we’ll go next to Jeetil Patel with
Deutsche Bank Securities.>>PATEL: Great. Thanks. Two questions. I
guess, first of all, you’ve got obviously quite a few products that–and applications
that have had success over the years, you know, kind of that are out there obviously;
Search, Gmail, Chrome, you know, Android, et cetera. I guess as you think about the
next generation of consumer relationship and stickiness, how do you think about like integrating
a lot of these core assets together in terms of, you know, building a consumer relationship
which kind of–kind of move seamlessly from all these different solutions and, you know,
formats out there as well as devices? And then second, maybe around Google+, obviously
it’s only been two weeks now. But maybe can you talk about the overall trend in terms
of 10 million users? How does that compare against maybe the early days of how Android
or Chrome or maybe even search or mail ramped? You know, you know, what kind of trajectory
or what kind of–what kind of trend schedule does it look like right now if you were to
pinpoint it against another product in the–in the business?
>>PAGE: Thanks very much for the questions. Those are good questions. We are on, you know–on
the integration point and, you know, we obviously have a lot of different products that do different
things for different people. And we know one effort that I mentioned, I’ve been really
excited about is this visual redesign. And I also mentioned the bar that goes across,
the black bar that goes across with Google+ that gives you a notification on sharing and
so on. We’re definitely working hard to integrate our products better to make the user experience
simpler, you know, intuitive and beautiful and consistent. And I’m really excited about
our progress just in one quarter on that. And I think you’ll, you know–we’re certainly
working hard on that. And expect to continue to over time. On the–on the Plus growth question,
we’ve, you know–we’ve been very, very excited about the growth we’ve seen and the engagement
we’ve seen with the, you know–over a billion items, you know, shared and received in a
single day. And I think that, you know, for us, you know, there’s a lot of barriers to
use Plus right now. One thing, you have to be invited and so on. And it’s still in the
field trial. So I think given all that, we’re just extremely excited about that. But, you
know, it’s very early days. It’s been less than two weeks since we released that into
field trial.>>Thanks for those insights, Larry. Thanks
for your question. Jamie, let’s go to the next question please.
>>And we’ll go next to Jason Maynard with Wells Fargo.
>>MAYNARD: Hey, good afternoon, guys. I have a couple questions. First, on Local. You’ve
got a lot of interesting services and capabilities. But they’re still fairly disparate, and in
some instances there’s some overlapping features. I’m just curious, from an end-user perspective,
how are you thinking about bringing together your various local commerce products? And
then maybe to follow up on the–on the Google+ question. Since it is so early, what are your
longer-term goals for Plus? I mean, measured by their users or number of items shared.
How are you thinking about this over say, a two-year timeframe? Thank you.
>>PAGE: Maybe I’ll take the first question–second question first, on the Plus, how would we
think about success of it. I think we are really, you know–obviously, like I said,
we want people to make products that, you know, everybody uses twice a day, like their
toothbrush. And we’d certainly think about Plus that way, and also just generally having
really great sharing experience and identity experience across Google and all of its products.
And so, that’s kind of how we think about the success there. I think it’s pretty straightforward.
On the first question, local integration. Patrick, do you want to take that?
>>PICHETTE: Let me say just that what’s been really cool about Local for us, in addition
to what Susan has mentioned a few minutes ago is, you have to think of it as we are
in fact assembling all the pieces of the puzzle. Local is actually a quite complex experience.
But when you have Maps, you have Mobile, you have Wallet, you have all the ads serving,
you basically have the pieces of the puzzle to succeed. And it’s not as much what was
yesterday’s tools that we had, and how do we evolve only yesterday’s tools. It’s about
taking those pieces of the puzzle and really creating true innovative services. And that’s
how we have to think about Local. And that’s why it’s not obvious. But if you look at the
arsenal we’re building, it’s actually quite formidable. So that’s why we’re excited about
it. Thanks, Jason, for your question. Let’s go to the next question.
>>And we’ll go next to Doug Anmuth with JPMorgan.>>ANMUTH: Thanks for taking the question.
I want to ask two things. First, Patrick, can you give us some color on the mix of headcount
additions? And in particular, if you look at R&D, it looks like it was flat sequentially,
but yet you added more than 2,000 people during the quarter. So I’m hoping you can provide
some color there. And then secondly, can you give us some context just in terms of how
you think about the Display business and whether you need more O and O inventory. Thanks.
>>PICHETTE: Okay. Well, I’ll answer the first one, and then I’ll let Susan answer the second.
On headcount, you know, again, as we said on the–on the call, you know, roughly, you
know, we have IT for 450 so roughly about 2,000 for the quarter, and Larry comment on
that. And we–there’s still a huge amount of engineers in that. It just happens that
R&D is actually in every line item. So you’ll find in us but you’ll find in many other areas
of our P&L. And so, you should not worry. I mean, we have a complete focus to make sure
that we actually have, you know, a majority of our hiring that is focused on Engineering,
which is really the core of the business. And then, we continue to kind of–and, you
know–then, you have the mix of sales and then, you know, just general overhead. But
it’s really engineering and sales that have been the focus with in that sequence. For
Display, I’ll let Susan talk about it.>>PAGE: I’ll just add too on the headcount
question. None of the focus there has changed substantially from our–from our past. Excuse
me.>>WOJCICKI: On Display, our biggest O and
O property is obviously YouTube. And given the numbers that we saw, we’ve seen tremendous
growth there and a huge opportunity to monetize video as more users come online, and more
content lines are being uploaded on YouTube. But the strategy, and our Display strategy
overall is not–is dependent not just on O and O; it’s also–has many other components.
The first is being to be a platform to enable advertisers and publishers to much more easily
buy and sell Display advertising. And then second, to enable all of the sites out there,
of which there are of course many, many, you know, millions, hundreds of millions of them
to–for them to be able to monetize and sell display advertising; and for us to be able
to help them as part of that process and via our network, where we have a lot of different
targeting techniques to try to serve the right ad to those users. So really, our strategy
is part O and O with our sites like YouTube, but then also to continue to build a great
network and platform products so that advertisers and publishers across the industry can serve
Display advertising.>>Thank you. Thanks for your question. Let’s
go to the next question.>>And we’ll go next to Anthony DiClemente
with Barclay’s Capital.>>DICLEMENTE: Hi. Thank you. I have one for
Patrick and one for Larry. Patrick, if we just isolate the 6% sequential growth in cost-per-click
versus last quarter, why don’t you just help us understand the driver of that acceleration.
And moving forward, should we expect that to continue or moderate given that as Mobile
queries start to take up more of the query mix? And then, question for Larry. It would
appear that, in social media, that switching costs for users are high; perhaps years of
photos on a social network platform. And as you look at Google+ and the growth there,
what are the most compelling offsets to those switching costs you think? Or do you perhaps
see a future where the folks can simultaneously be a part of multiple social networking platforms?
>>PICHETTE: Thanks for the question. So why don’t I let Susan actually give you a bit
of color on our CPC and evolution, and then Larry will take on the latter, the social
one. Susan?>>WOJCICKI: The drivers of CPC, there are
few of them. One of them in this quarter was FX, certainly. But we’ve been really focused
on our ads quality improvements, and how do we continue to obviously make our ads better
for our users and for our advertisers. And in doing so, we’ve actually–we’ve done a
lot of optimization of our ads that appear above the search results like site links,
some of the ad changes in the formats that we made this quarter. And a lot of the ads
that appear above the top search results tend to be higher CPC because they’re the first
three ads. So as we continue to optimize and really drive a lot of increased click-through
and visibility for the ads that appear above the search results, you will see–since those
tend to be higher CPC because they’re at the top of the results, you will see some of that
increasing.>>PICHETTE: Larry, on sell-through and switching
costs?>>PAGE: You know, so, I think, you know,
we have been really excited about Google+ really improving the overall social experience
and making it more like how you would share in real-life. And that’s really a different
product than is out there now. And we’re getting just rave reviews for that. People really
like being able to share with more discrete groups in an easy way, intuitive way. And
there’s a lot of magic built into the product that causes that. And as, you know, you asked
about the photos, we actually have a really great photo experience on the Android. Like
if you take a picture on Android and you have the Google+ client which you would have if
you’re using it, it uploads your photos automatically. And it’s super easy to share them and post
them to your friends or your family or whatever. And it’s a really, really great experience.
So, you know, there’s legacy in, you know, Google, as a company and believes in users
owning their own data and being able to easily move it out of Google. And some of our competitors
don’t believe in that. But we think that users will eventually move to services that are
in their best interest and that work really well for them.
>>PICHETTE: Thank you for your question. It’s already 2:30, so why don’t we take, Jamie,
one last question and then we’ll have to close the call unfortunately.
>>Thank you, sir. We’ll take our final question from Jim Friedland with Cowen and Company.
>>FRIEDLAND: Thanks. I wanted to ask the question on–or follow-up on where you guys
said that you’re a little ahead of where you expected to be on hiring. Should we think
about the hiring and particularly in R&D sort of coming in waves where you hire a bunch
of people, get them integrated, maybe it sort of slows down and pick up–picks up again?
And then the second question and just on the P&L, other cost surviving users of percentage
of [INDISTINCT] TAC seem to be a little high. Is that coming from increased Data Center
depreciation or is it may be coming from YouTube and content related costs? Thanks.
>>PICHETTE: I’ll answer the first one, and then–the latter one, and then I’ll let Larry
talk about hiring in general. The P&L, yes, it is a combination of factors this quarter.
So in that cost is also included headcount. And so, headcount is actually increased. Power
is increased because of seasonality. It’s summer now, so our power is a little higher.
And we’ve also had kind of catch up on expenses on some of the equipment. So there’s been
a bit of a–if you think between Q1 and Q2, there’s been a bit of a cleanup in some of
the areas of equipment that have actually in, you know, slightly deflated Q1 and inflated
Q2 as we finish the cleanup, so that was a bit of a catch up there. So I wouldn’t read
the data point between Q1 and Q2 as I don’t create a graph with that, with the line. But
that’s–it’s bit–it’s a bit of everything, including a bit of cleanup and some of the
equipment accounts. For the issue of hiring, I’ll let Larry actually talk about general
where we stand right now.>>PAGE: Yes. That’s a great question. You
know, I think just a couple of factors that affected that. And I think, you know, we know–you
know we implemented compensation changes in Q1 and we increased our employee compensation.
And they’ve had even more positive effect on hiring and retention than when we expected.
So that’s been a super successful change. And I think, in general, there’s this more
excited people who want to work at Google and who want to stay working at Google than
we expected. And so, that’s–had some impact on those numbers. But, you know, there’s–of
course, there’s a limit on how many we can–and how fast we can productively hire. And I–and
I said this in my remark, I think, you know, kind of my judgments were at the edge of that
piece being reasonable or just adding a lot of people. And, you know, I’d say that we’re
always looking for good people, and we’re always, you know–the exact rate is going
to depend on success and where and–where we really want to invest in the company. We,
you know–we have a really strong management team. I said that’s working together fabulously,
and we can absorb those hires and put them to use well. But like I said, you know, we’re
definitely–we’re surprised that the success of our previous changes around compensation
as well.>>Great. Thank you.
>>PICHETTE: Thank you very much for your question, James. With that, I just want to
thank Larry for joining us today; and Nikesh and Susan for the comments as well as the
Q&A. I want to thank, once again as I always do, all the Googlers out there, our fantastic
Googlers that have made this quarter possible and all of the innovation. Especially, you
know, I think it’s worth mentioning, our Google+ team that has done a phenomenal job in this
launch. So two thumbs up. So on behalf of all of us here, congratulations and many thanks
to all of our gang at Google. With that, I’ll let you, Jamie, close the call. And thank
you, everybody, for participating today.>>Thank you, sir. That does conclude today’s
conference. We do appreciate everyone’s participation.

3 Comments

  • Reply skyjog July 15, 2011 at 5:30 pm

    I was very excited for Larry Page to take over as CEO of Google. My interpretation was that Schmidt played it safe, maintained a poker face and quietly raked in the cash for Google. I thought Larry Page as CEO would spice things up. I mean, a young engineer in charge of a 200 billion dollar corporation sounds like fun to me. And slowly over the past few months my expectations were met. Google is taking more chances. Most visible are the changes to the homepage.

  • Reply skyjog July 15, 2011 at 5:41 pm

    Google is really taking on HTML5. The way Google adjusts the colors of their homepage and the colors of Youtube reminds me of the playful spirit I encountered in reading iWoz. Steve Wozniak spoke of the fun he had changing a single number in an Apple II program to produce wildly unique results on screen. Simply put, I think Google is using the power of art more than ever.

  • Reply Noah Kauffman July 15, 2011 at 9:35 pm

    333 views on this vid & 13M avg volume shares today. This really showcases how little the average investor cares about how Google's amazing business actually works. Every one of these presentations is so interesting and fun to listen to the future of search. For all the new jobs and amazing technologies Google creates, tech investors are so clearly clueless to how important Google is.

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