Google Growth Grossly Outpaced By Expenses (GOOG)

Google Inc. (NASDAQ: GOOG) is out with earnings and the results are not exactly what Goggle fans expected.  The internet search giant (and digital amalgamated conglomerate) turned in earnings of $8.08 EPS and ex-TAC revenues were $6.54 billion.  Thomson Reuters has consensus estimates of $8.11 EPS and $6.32 billion in ex-TAC revenues. Revenue growth of 27% is hard to knock on the surface.  That comes to $8.58 billion in revenues if you include the Traffic Acquisition Costs.  TAC came to $2.04 billion, or about 25% of advertising revenues.

Net cash from operations was $3.17 billion on $2.28 billion in free cash flows and Google ended with $36.7 billion in cash.  That means that close to 20% of Google’s $186 billion in market cap is cash.  What is going to drive some caution is that operating expenses keep rising.  They came to $2.84 billion, or 33% of revenues, from $1.84 billion, or 27% of revenues, a year ago. If you tally this up in raw dollars rather than just the six percentage points of revenues, operating expenses are up about 54% by our calculations versus the 27% growth in revenues.

Google-owned sites revenues were up 32% to $5.88 billion and now 69% of total revenues.   Google’s network revenues showed that partner sites generated revenues in AdSense of $2.43 billion, or 28% of total revenues.  That was up 19%.  International revenues are now 53% of revenues at $4.57 billion.  Google keeps making money on its currency hedges.  Revenues would have been $19 million or $23 million lower depending upon method of calculations. Paid clicks rose 18% from a year ago and 4% sequentially.  Cost-Per-Click rose 8% from a year ag,  but they fell 1% sequentially.  Google’s headcount continues to grow as it employed 26,316 full-time employees at the end of the quarter versus 24,400 at the end of 2010.

Investors aren’t drinking the punch here today.  Options traders were not looking for a move of this size.  Shares are down over 4% and over $25.00 at $551.28 in the after-hours trading session.  The 52-week trading range is $433.63 to $642.96.  Stay tuned.

JON C. OGG