- Revenues of $17.7 billion and revenue growth of 11% year over year; constant currency revenue growth of 18% year over year
- Strong performance of core search business, particularly mobile, complemented by growth in YouTube and Programmatic Advertising
- GAAP and non-GAAP operating income grew 13% and 16%, respectively, year over year
- GAAP diluted EPS for Class A and B common stock and Class C capital stock of $4.93 and $6.43, respectively, and non-GAAP diluted EPS of $6.99
- Strong operating cash flow of $7.0 billion
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 Highlights
The 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 Distribution
In 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 Monetization
Revenues 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 Expenses
Traffic 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 Information
In 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 Information
A 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.
