Google 3Q Profit Soars 46 Percent(biz.yahoo.com)
biz.yahoo.com
Google 3Q Profit Soars 46 Percent
http://biz.yahoo.com/ap/071018/earns_google.html
10 comments
Profit measured in dollars, with revenue coming in across the world means part of this isn't real growth.
The profit is up 46% year over year... The Euro has risen about 18% against the dollar in the same period. Even assuming that ALL of their business was in Euros (which it isn't by far), this still represents pretty darn good growth for a company that already had the market cornered.
Profit is more heavily leveraged than revenue.
Let's do a hypothetical example. Assume that you've got a company that does $100M in revenue, 30% of which comes from Europe (so $70M from US, $30M from Europe). They spend $90M to get that revenue, all in USD, for margins of 10% and earnings of $10M.
Now say that the Euro appreciates 20% against the dollar. That $30M in Euros becomes worth $36M. Total revenue goes up to $106M, but expenses stay constant at $90M. Profit is up to $16M, a 60% increase. However, the operation of the business hasn't changed at all - it's all due to currency fluctuations.
Let's do a hypothetical example. Assume that you've got a company that does $100M in revenue, 30% of which comes from Europe (so $70M from US, $30M from Europe). They spend $90M to get that revenue, all in USD, for margins of 10% and earnings of $10M.
Now say that the Euro appreciates 20% against the dollar. That $30M in Euros becomes worth $36M. Total revenue goes up to $106M, but expenses stay constant at $90M. Profit is up to $16M, a 60% increase. However, the operation of the business hasn't changed at all - it's all due to currency fluctuations.
From the actual filing with the SEC:
"International Revenues - Revenues from outside of the United States totaled $2.03 billion, representing 48% of total revenues in the third quarter of 2007, [...] Had foreign exchange rates remained constant from the third quarter of 2006 through the third quarter of 2007, our revenues in the third quarter of 2007 would have been $121 million lower."
Additionally, their total reported profit (net income is the figure that increased 46%, so I will assume that is what they mean by 'profit') was $1.07B. If you assume that the $121M due to forex was pure gravy, then their pre-forex profit was $949M. This is still a 29.5% increase on a year earlier (when their profit was $733M in the third quarter).
"International Revenues - Revenues from outside of the United States totaled $2.03 billion, representing 48% of total revenues in the third quarter of 2007, [...] Had foreign exchange rates remained constant from the third quarter of 2006 through the third quarter of 2007, our revenues in the third quarter of 2007 would have been $121 million lower."
Additionally, their total reported profit (net income is the figure that increased 46%, so I will assume that is what they mean by 'profit') was $1.07B. If you assume that the $121M due to forex was pure gravy, then their pre-forex profit was $949M. This is still a 29.5% increase on a year earlier (when their profit was $733M in the third quarter).
But revenues are up 57% year-over-year. So if forex played a part, it had to be negative -- if they have disproportionate oversease expenditures compared to revenues, that would make sense. Otherwise, blaming the dollar doesn't help.
Well I'm sure that forex had a slight positive effect. My point was that it wasn't the only cause of the increased profits. The fact that revenues are up 57% and profit is only up 46% with the slight forex leverage probably signals that they are getting big enough that their margins are falling off. I would guess that is why it is only up 1.2% (as of close of market) on such a huge increase. The other reason probably has to do with the generally bad day on the market today.
Of course, seeing it around $650 makes me wish I hadn't sold all mine at $425. ;)
Of course, seeing it around $650 makes me wish I hadn't sold all mine at $425. ;)
This need probably applies to other companies. We'd probably need a usd/non-usd revenue breakout in yahoo finance or its competitors.
They've certainly grown. IIRC, I've read that around 50% of Google's revenue if from outside the US.
Good point.