As the First Quarter began to wrap up, companies began to prepare their 1Q figures for 2011. Google [GOOG], one of the companies in the industry seen as a bellwether of economic activity today announced their quarterly earnings for Calendar and Fiscal 2011. Google reported net income of $2.3 Billion on revenues of $8.58 Billion. Furthermore, the revenue figure shows a 27% increase year over year compared to the first quarter of 2010.
An even better measurement of Google’s momentum shows that in the last quarter of 2010, 4Q 2010, they had reported $8.44 Billion in revenue and $2.543B in net income. This does actually mark a decline in profit quarter to quarter, but many analysts expected this as 4Q is traditionally a busier quarter for Google. Even so, Google’s earnings disappointed investors that were expecting an EPS of $7.06 rather than the $7.04 that actually occurred. Even though earnings disappointed analysts, Google's revenue still beat estimates. While it definitely seems more fair to assume that year over year in this case is a more accurate reflection of the improvements that Google is seeing, the fact that they missed estimates likely indicates that there were some things that were unforeseen costs or losses. This is even when average cost-per-click for Google went up 8% year over year compared to 2010. Furthermore, their traffic acquisition costs were also down 1% from the same quarter last year which should have indicated more profitability.
Part of the disconnect between Google’s actual earnings and the expected earnings is likely to be due to the fact that Google has been making significant capital expenditures in IT infrastructure. These investments in their IT infrastructure would include the investment in data centers, servers, and networking equipment all of which will bring a new level of service to Google customers. This may be due in part to the fact that there are rumors going around that Google is preparing to launch their own music service. That sort of an undertaking would require significant capital investments in order to accommodate extra bandwidth on their networks while still being able to retain the expected level of service that Google customers have come to expect. Furthermore, we find it almost odd to think that someone like Google who is one of the crowning champions of cloud computing has been beaten to the punch by competitors like Amazon in regards to cloud music. It is only a matter of time until Apple launches their cloud music service and gives Google an even harder time of competing.
The one thing that Google does have going for them, though, compared to their competitor Amazon is that they already have their own mobile OS to launch their cloud music service onto. They do not rely on anyone else to launch their service and they will be launching on a platform that has a lot of growth left in it. Let’s not forget, they also will have yet another avenue to create revenue with.
Overall, Google at this given moment appears to be on the right path and is doing a lot of good things on multiple fronts to continue to grow the company. At this given moment, though, Google’s stock appears to be taking quite a hammering from investors even though they really didn’t miss their mark by much at all. Right now, Google’s stock is at $547.17 or down 5.42% from earlier close today. In general, we look at Google’s earnings as improving but nothing to necessarily write home about. Google’s earnings are kind of like our recovery, mediocre but room for optimism.
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