Thursday, 02 February 2006 09:49

Google bamboozles market with results

By

Web search giant Google announced its results for the three months and full year ending 31 December 2005 with stunning figures, yet the market sent it share price crashing by 15%.

Quarterly revenues were up 22% on Q3, and up 86% on the same period in 2004, reaching US$1.92bn. For the full year, revenues - of which 99% comes from advertising - were up 92%, reaching a staggering US$6.14bn.

Considerable global expansion efforts during the year saw operating expenses grow ahead of expectations by 42% to US$1.55bn. Despite this, the company reported full-year operating profits that were up by 88% on 2004 at US$2.02bn. Google's enterprise software licensing business, while still accounting for only 1% of the company's overall business in 2005, grew by 60% over the previous year.

Revenues from outside the US grew faster than overall revenues, going up to 39% of the total compared to 34% in the previous year.
 
UK research group Ovum director, Richard Holway, indicated that market analysts still do not know how to value the company and Google is not providing the guidance to help them.

Holway said: "It requires a double take when a company that has just reported Q4 gross revenues up 86%, revenues net of commissions nearly doubled at US$1.29bn and profits up 82% to US$372m, sees its share price crash by 15% in after-hours dealings, knocking US$19bn off its market value.

"The problem is that Google doesn't play the game of steering financial analysts to make estimates with which it is comfortable. Therefore the analysts have to make up their own. So it is the analysts who should be blamed for getting their forecasts wrong! Google's CEO Eric Schmidt said on the call last night, 'we are very pleased with the performance in every way' and he also added that these results had exceeded Google's internal forecasts.

"The problem is also that, although these growth rates are stellar by anyone's measure, they do represent a slight reduction in the growth rates reported in the last five consecutive quarters. Higher corporate taxes, the dollar exchange rate, a US$90m charitable donation, US$58m stock options and higher sales and marketing costs all hit profits.

"Connecting Google's market value with any performance metrics has taxed us for so long that we have given up trying to figure it out. Putting share price and valuation to one side, Google is continuing to invest medium-to-long-term without too much of an eye on short-term expediency. That must be good, and should give its competitors even more cause for concern."


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Stan Beer

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Stan Beer co-founded iTWire in 2005. With 35 plus years of experience working in IT and Australian technology media, Beer has published articles in most of the IT publications that have mattered, including the AFR, The Australian, SMH, The Age, as well as a multitude of trade publications.

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