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    Google’s Earnings Call: 4 Key Takeaways

    By
    Michelle Maisto
    -
    April 13, 2012
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      Google€™s first-quarter 2012 earnings call was notable for both what executives shared and didn€™t say. In addition to announcing a two-for-one stock split, $10.7 billion in revenue for the quarter and a cash pile totaling nearly $50 billion, there was much talk of the value of clicks and developments in search. With 850,000 Android devices being activated each day, it€™s easy to forget that advertising and clicks are Google€™s primary businesses. However, Android plays an increasingly starring role in both.

      CEO Larry Page emphasized his and co-founder Sergey Brin€™s personal investments in Google, their €œenduring love€ for the company, their impatience to make it a company that does €œimportant things€ in the world and the necessity of taking a long-term view to achieve this objective. Below are four more notable points that Page and company touched on during the hour-long call.

      1. Searches are going to continue to become more sophisticated, helped by social features like Google+.

      Privacy concerns hover over much of what Google does€”amid some controversy, it recently updated its privacy policy€”as personal information is key to Google€™s ability to improve itself.

      When asked about Google€™s investments in Google+, and whether the company with the best €œsocial signal€ would be able to offer the best search capabilities, Page€”as he did in a recent €œ2012 Update€ posted to Google€™s Investor Relations page€”gave the example of searching for his friend Ben Smith. Google searching, he explained, has advanced to where it knows enough about a user to understand which Ben Smith, for example, is being searched for, despite the fairly common name.

      €œHaving real feedback from users about what they like and don€™t like and things they€™re sharing and so on is very useful for search. We have a lot of those signals already, but we can always use more €¦,€ said Page, according to a transcript from Seeking Alpha. €œI think search is going to change a lot. We€™re going to make it a lot better over the next five or 10 years, just as it€™s changed a lot in the past. And it will include a bunch of those signals and a bunch of other things as well.€

      2. As mobile devices become intrinsic to users€™ everyday lives, mobile costs per click (CPCs) are on track to surpass desktop clicks.

      During the first quarter, Google€™s average CPC declined by approximately 12 percent, though paid clicks rose by 39 percent. Discussing CPC, Google CFO Patrick Pichette described mobile as still €œcrude,€ and where search functionality was in 2002 or 2004.

      But it€™s going to get better and better, said Pichette€”an idea Page agreed with, saying that while desktop is the focus for now, over time he expects the reverse be true, especially with Google increasingly focused on things like Google Offers, Google Wallet and Click-to-Call.

      €œIt€™s a lot easier to call someone from your mobile than it is from your computer right now,€ said Page. €œ[We€™re getting] more and more focused on that, both on our sales side, and our customers are getting more focused on that. I€™m very, very bullish on that.€

      Android Is By No Means a Side Business for Google

      3. Android has been called a Google side business, but it€™s actually an invaluable thread running through all its efforts.

      When thinking about Android, Page said, it€™s important to think about the longer-term issue. Google is focused on creating a seamless user experience across devices and functionalities€”from desktops to smartphones to televisions to tablets and beyond. It€™s also integral to all of Google€™s software innovations, from the Google Play store to Wallet, Offers, YouTube, Google TV and everything else.

      €œI think Android€™s really about increasing the pace of innovation, the usage of mobile devices and our ability to get a great user experience out to our users,€ said Page.

      He later added, in regard to the importance of tablets, €œBig screens are important, computers are important, phones are important, and I expect that they€™ll [eventually all] work well together. €¦ I don€™t think any single device is going to drive all the usage or all the kinds of convergence that need to happen.€

      What they can all have in common, though, is Android.

      Googles Strategy Regarding Motorola Remains a Mystery

      4. Google isn€™t saying much about Motorola€”but the analysts are.

      On Valentine€™s Day, the Department of Justice gave Google and Motorola its blessing, saying the former could buy the latter. That a software maker would buy a hardware maker is logical; there€™s just the issue of Google also offering that software to the various other hardware makers.

      It€™s like if the best bread baker sold her bread to happy bakeries around town, but then decided to also open up her own storefront. Her bakery customers would be forgiven for worrying she might stay up nights, working on some special recipes or extra little buns for her own shop. Google insisted in the acquisition announcement that Motorola will receive no special treatment. During the earnings call, however, a flour-covered Google was mum on the topic.

      Analysts with Piper Jaffray, in an April 13 research note to investors, suggested the more dire need was for an assurance that Google can improve Motorola smartphones.

      €œIf Google is serious about keeping Motorola as a part of its business, we believe the company must address the issue that Motorola does not seem to make devices that consumers want,€ wrote the analysts. €œTo make the Motorola acquisition work, Google will have to help Motorola deliver better hardware with the newest Android releases, which may upset partners. While the investment in Motorola may not be meaningful enough to truly hurt margins, we believe investors worry that Motorola could become a distraction for Google longer term.€

      Analysts at Jefferies called the €œlack of clarity€ around Motorola likely to €œremain an overhang on the stock, short term.€

      It nonetheless maintained its “buy” rating, raising the target price to $850.

      Michelle Maisto
      Michelle Maisto has been covering the enterprise mobility space for a decade, beginning with Knowledge Management, Field Force Automation and eCRM, and most recently as the editor-in-chief of Mobile Enterprise magazine. She earned an MFA in nonfiction writing from Columbia University, and in her spare time obsesses about food. Her first book, The Gastronomy of Marriage, if forthcoming from Random House in September 2009.

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