[jimmyvanhalen]

On a related note:

I really think analysts aren't looking at Google's income statement properly. I don't think Google is doing some kind of financial engineering, but their numbers doesn't look that great if you look closely:

1st Q 2011 GAAP net income $2.3B (adjusted to $1.8B after DOJ investigation, we'll use $2.3B anyway).

1st Q 2012 GAAP net income $2.89B

~$600 Million increase in GAAP net income.

BUT WAIT

1st Q 2012 Traffic acquisition cost totaled $2.51 billion

1st Q 2011 Traffic acquisition cost totaled $2.04 billion

~$500 Million increase in TAC

Google had to spend an additional $500 Million to earn an additional $600 Million net income. And it's the same thing if you compare other quarters YOY. The increase in TAC is almost equal to the amount of increase in net income. It's easier for Google to just withdraw money from it's own bank account and deposit it to another one and call it "net income". ;) jk

[pessimist]

Net income is after subtracting TAC. Revenues increased by $2.1b, so Google paid $500m to acquire $2.1b in revenue. Of the $1.6b in "real" revenue growth, they made around $600m in profits. In other words their profit margin is roughly 40%.

Also if you're worried about such shenanigans, you can look at free-cash-flow, which was $3.1B for the quarter (astonishing for any non-oil/AAPL company).

[jimmyvanhalen]

>Net income is after subtracting TAC.

I'm aware Net income is subtracted after TAC.

>Revenues increased by $2.1b, so Google paid $500m to acquire $2.1b in revenue. Of the $1.6b in "real" revenue growth, they made around $600m in profits. In other words their profit margin is roughly 40%.

You didn't address my original post. Google's net income grew almost AS MUCH as the increase in TAC. and it's the same pattern for years. and Google's TAC has been steadily increasing over the years. I'd be more impressed if net income increased but TAC decreased.

Also I wouldn't focus on Revenue since Google's revenue INCLUDES their TAC.

> Also if you're worried about such shenanigans, you can look at free-cash-flow, which was $3.1B for the quarter (astonishing for any non-oil/AAPL company).

A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating Google is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period.

And if you're going to talk about free cash flow, look at Google's return on invested capital.

Google's 5-year average ROIC is only 17.1% and currently it's only at 15.9%.

[nostrademons]

TAC is largely AdSense partner payouts - and likely things like Chrome distribution deals and Android partner agreements now. Saying "net income grew almost as much as TAC" is basically saying "Google's AdSense, Chrome, and Android businesses are a healthy and growing segment of its total revenues."

Note that you can spin this to look bad for Google either way. If TAC was low, it'd be "Google gyps their AdSense partners, and soon there'll be a publisher revolt", something I've occasionally seen complained about on HN. If TAC is high, it's "Google's numbers don't look good; clearly their business is in trouble." The numbers are what they are; if you want a useful picture of whether to invest, you need to understand the business better than that.

[jimmyvanhalen]

I'm not trying to spin this to make Google look bad.

It just looks like that their spending an awful lot of money to arrive at a net income which is almost equal to the amount of money they spent.

[pessimist]

I'm not trying to spin this to make GOOG look good, but I would love to be able to spend $1 and get $1 back as profit in addition to my $1.

[jimmyvanhalen]

In this case, Google spent $1 to get a return of $1.1

[pessimist]

First you said - "It's easier for Google to just withdraw money from it's own bank account and deposit it to another one and call it "net income"." This is absolute nonsense, and what I was responding to.

It may well be that increasing TAC % implies a worse business for Google, but thats certainly not what your original point was.

[jimmyvanhalen]

that was a joke ;)

[jcampbell1]

How is a 120% ROI in 1 quarter a problem? You just let me know where I can spend $500M and get $1.1B back in the same quarter.

I have no idea what point you are making.