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Google's New CFO Delivers the Goods, Beats Analyst Expectations

The new CFO premieres before Wall Street.

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Google’s new finance chief may have handed Wall Street the results and restraints they wanted. But it doesn’t appear that she will alter Google’s affection for concealing numbers and investing aggressively.

CFO Ruth Porat presided over her first earnings on Thursday, delivering two things analysts were itching for: Stronger than expected sales and profit, and cuts to spending. On the call, Porat said she was focused on “the levers within our control to manage the pace of expenses.” Still, she cautioned that those expenses are often necessary, and won’t always trend downward. In essence, her message to Wall Street was: I hear you on the spending stuff, but just let Google be Google.

She and chief business officer Omid Kordestani YouTube raved about YouTube (people watch it!) and mobile ads (Google is getting better are charging for them). Kordestani cited a few new figures: YouTube’s “watch time” is up 60 percent annually, and mobile viewers average more than 40 minutes on the site. He also repeated a boast the company has been using since April: YouTube’s mobile views for 18 to 49 year olds exceed any single cable network.

Per earlier earnings calls, neither executive shared specifics on YouTube’s revenue. Porat dodged a question on whether the video service is profitable, choosing to reiterate the claim — laid out last quarter — that upticks its viewership dragged overall Google paid clicks down, since YouTube ad rates are lower than others.

Analysts did not ask questions about potential threats to YouTube from Facebook, and Google did not bring it up.

Porat toed questions on spending discipline craftily. She paid lip service to “tight governance” on resources doled out to projects crawling out of moonshot phase, namely Fiber, Nest and Life Sciences. But she also stressed that she making no promises on spending controls. Capital expenditure, down this quarter, could rise next quarter (new grads to hire) or the following (holiday season).

The CFO, a banking veteran for decades, avoided a question on whether she found Google’s regulatory pressures akin to her prior industry. On the European Union charges, she replied diplomatically: “There are many windows into the web. Choice, competition are going up, not down.”

And on cash to shareholders, a favorite analyst quibble with Google, Porat took a hardline. It’s a possibility, she said, but larger dividends come from Google’s M&A and long-term investments.“To date,” she said, “the biggest return on investment here has been come from our core mobile search investment.”


If Ruth Porat, Google’s new CFO, is aiming to please Wall Street, she’s off to a good start.

For its second quarter, Google generated $14.35 billion in revenue (excluding the money passed on to partner sites) and $6.99 earnings per share. Analysts were looking for something around $14.27 billion on $6.70 EPS.

But that’s not all they were looking for. Wall Street was largely hoping that Porat, in her first quarter since arriving from Morgan Stanley, would christen an era of disclosure and prudence at Google.

For disclosure, investors are clamoring for some — any, really — metrics for judging the business beyond the cost and quantity of ad clicks. Figures on YouTube and mobile ads, where Google has made scores of product changes this quarter, are among the most desired. We’ll see if that happens on the call, commencing shortly.

On prudence, there are a couple yardsticks. One is costs: In the first quarter, Google expanded expenses by 37 percent to $6.46 billion. It also added 1,819 employees, for a total of 55,419, a 20 percent yearly hike. Judging headcount over time is tricky (the Motorola acquisition and then dump clutters the numbers), but consider that in the spring quarter four years ago there were 28,768 Googlers.

Capital expenditure is the other matter. For years, it has gone up and out as Google plowed more funding into its data centers, research and long-term pipe-dreams. In the first three months of the year, the outlay was $2.91 billion, or 17 percent of sales.

So, how did Porat do?

  • Costs: Google trimmed its operating expenses, which fell from $6.45 billion last quarter to $6.32 billion this one (though it’s still an increase year on year). But Google did add just shy of 2,000 employees during the quarter.
  • Spending: Down! Google’s capital expenditure fell to $2.52 billion during the quarter, about 14 percent of total sales. Let’s see if and how Porat explains the dip.

In after-hours trading, the stock shot up around 7.8 percent.

In a statement with the release, Porat hit on both mobile ad revenue and thrift: “Our strong Q2 results reflect continued growth across the breadth of our products, most notably core search, where mobile stood out, as well as YouTube and programmatic advertising. We are focused every day on developing big new opportunities across a wide range of businesses. We will do so with great care regarding resource allocation.”

Stay tuned for Porat’s performance on the call, which we will liveblog below for your benefit.

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