Google demolishes financial expectations to close 2013

For the second year in a row, Google surpassed $50 billion in annual revenue as the company announced its fourth-quarter earnings for 2013.

2013 was another boffo year for Google.

The company trounced financial analyst expectations in the fourth quarter of 2013 as revenue rose to $16.86 billion, 17 percent higher than the same period in 2012. The company's operating income, on earnings excluding one-time items, rose to $4.84 billion from $4.27 billion a year earlier.

Analysts expected earnings per share of $12.26 on revenue of $16.75 billion. While Google's earnings per share missed those expectations at $12.01, they were much higher than the $10.65 a year earlier. Revenue far surpassed expectations as well.

This is the second consecutive year that Google crossed $50 billion in revenue, reaching $57.86 billion. In 2012, the company generated $50.18 billion in revenue, which was up from $37.91 billion in 2011.

As expected, this was the first call that CEO Larry Page did not participate in, officially to focus more on business development. As last time, when he jumped off the call early, in his place were Patrick Pichette, Google's chief financial officer, and Chief Business Officer Nikesh Arora.

"Marketeers tell us that 'advertisers' ROI don't lie,'" Arora said, repeating what he said was an internal Google slogan to explain why the company continued to grow during the quarter.

Traffic acquisition costs (TAC), which Google must pay to its partners, jumped to $3.31 billion in the fourth quarter of 2013, compared with $3.08 billion in same period the year before. However, TAC as a percentage of advertising revenue was basically flat -- 24 percent in the quarter versus 25 percent a year earlier. The TAC this quarter was split, with $2.49 billion going to network members, and $824 million paid to distribution partners and others who help drive traffic to Google.

Ads continued to make up the lion's share of Google's business, with advertisers learning more about the maturing ad market, Arora said. "For the first time, videos by brand marketeers were in YouTube's top 10 for 2013," he said.

Google execs successfully distracted analysts from Motorola Mobility's failures in 2013 by mentioning the successes of other hardware such as the Chromecast. James Martin/CNET

Average cost-per-click (CPC) shrunk again, making this the seventh or eighth quarter in a row that CPCs were down. Despite the decrease, analysts declined to ding Google, most likely because of its improved hardware numbers and better-than-expected revenue from an expanding user base in developing markets. Arora cited strong growth in Google Play, Chromecast, and Chromebooks, and Google's enterprise initiatives as being important components in the company's revenue growth. Google's attempts to diversify its portfolio beyond Search ad clicks appear to be working, although neither Arora nor Pichette provided numbers to back their comments.

"There's great momentum in Q4 on the Nexus 5 and Chromecast. We're very pleased with the performance of both of those, and Chromebooks," Pichette said.

Meanwhile, Motorola barely came up during Google's conference call to discuss the quarterly earnings, with investors and analysts apparently appeased with Google's plan to hand off the troubled division to Lenovo.

Additional key numbers from Google's fourth quarter:

  • Google-owned sites generated revenues that were up 22 percent over the year before at $10.55 billion.
  • Google's partner sites generated revenues up 3 percent over the prior year at $3.52 billion.
  • Revenue from the United Kingdom was flat, but international revenue was up 2 percent, a slight increase over the previous year.
  • Paid clicks were up approximately 31 percent over the year before and 13 percent over the third quarter.
  • Google will probably have to suffer with Motorola Mobility for a few more quarters as the Lenovo deal goes through approval. Motorola cost Google $384 million in the fourth quarter of 2013.
  • Google has $58.72 billion on-hand in cash, cash equivalents, and marketable securities.
  • Google's earnings in the fourth quarter of 2013 grew both year over year and quarter over quarter. Screenshot by Seth Rosenblatt/CNET

    Shares of Google closed up nearly 2.57 percent during regular trading to finish at $1,135.39 at the time of writing. Shares are expected to rise following Google's conference call on the release of earnings on Thursday.

    Google continued to expand its operations with new employees, too. As of December 31, 2013, the company employed 47,756 full-time employees worldwide, with 43,862 in Google and 3,894 in Motorola, up from 46,421 people at the end of September, but down from the 53,861 full-time employees a year earlier. Motorola Mobility has 365 fewer employees than a year ago. While Google gained more than 6,000 employees, it shed the entire Motorola Home division of 5,204 people, and reduced Motorola Mobility by around 7,200 people in 2013.

    This story has been updated throughout with additional information on Google's earnings since it was originally published.

     

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