IP Democracy: Google's Still a Cash Machine

Google issued its Q4 07 earnings report today showing a 51% rise in revenues and a 17% increase in net income, year-over-year. But after-hours trading sent the company's stock south because those increases did not meet Wall Street's expectations.

Revenue for the search giant advanced to $4.8 billion during the quarter, while net income climbed to $1.2 billion. A slow-down in click-through growth hadn't been factored into the analysts' models. Paid clicks grew 30% year-over-year but Wall Street had been banking on the historical 50% growth rate in this key metric.

What I find most interesting about Google is that the mountain of cash the company sits on just keeps growing and growing, even as operating expenses and capital expenditures soar. Free cash flow (the money left over after all costs, including capital expenditures) more than doubled from year-end 2006 to year-end 2007, when Google generated $1.1 billion in left-over money in the bank.

The free cash mounted even as operating expenses jumped by 58% and capital expenditures surged by 85%. By year-end 2007, Google had $14.2 billion in cash and marketable securities, $3 billion more than it started with at the beginning of the year. Assuming Google is the winner of the C block 700 MHz bidding, the company could write a check to the feds for $4.7 billion and still have $10 billion left over (although Google probably wouldn't take such a big bite out of cash to pay for the spectrum).

Wall Street, however, cares almost solely about future growth and Google's revenue growth engine is cooling slightly. During the fourth quarter of the year, typically Google's strongest period of growth, Google's revenues rose by 14% sequentially in comparison to the 19% rise in Q4 07 and the 22% rise in Q4 05.

During the company's earnings call, Google execs said that the international market might goose Google's growth, with more than half of the company's search traffic gains flowing from overseas.

Posted by Cynthia Brumfield on January 31, 2008 7:19 PM to IP Democracy