First things first.
By now, you've surely heard about the changes at the top of Google (Nasdaq: GOOG) and its hitherto unconventional leadership structure. I won't cover the changes in great detail, since that's already been done to death, so let's just say that an opaque structure is getting simpler and leave it at that.
I'm here to talk about Google's fourth quarter and what lies ahead. That important part of the report got lost in the management-shakeup hoopla.
Fool by numbers
Sales jumped by 26% year over year to $8.4 billion, a showing that extends a trend of accelerating revenue growth that, aside from a hiccup of "only" 22.6% growth last quarter, stretches all the way back to the quarter that ended in September 2009. Yes, I said accelerating. The days of heady growth are not over just because Google is getting big -- an argument I'm sure sounds familiar to many Apple (Nasdaq: AAPL) investors out there.
Moreover, Big G's gross margins are widening on the back of a more profitable cost structure for its AdSense advertising network. On the downside, operating costs increased faster than sales, and that's a trend that will continue: Next quarter will reflect the impact of a 10% salary boost for non-executive Google employees across the board, plus a push to convert bonuses into more predictable base-salary increases.
Given these puts and takes, the bottom line saw 29% growth in non-GAAP terms, landing at $8.75 per share. Operating cash flow kept pace with 29% growth, though most of that cash creation was sunk into a $1.9 billion investment in some prime New York office space. CFO Partick Pichette characterized that sudden interest in real estate as "not only a wise investment, but a clear commitment to our New York City site and, frankly, a reflection of our optimism about our growth prospects."
Color me this
Speaking of growth prospects, Google now sees more than 300,000 Android phones activated every day and a tenfold increase in Android-based search traffic year over year. YouTube revenue doubled, and the number of DoubleClick Ad Exchange transactions tripled; the monetizing engines are clearly running in both of those high-profile divisions, though we still don't get to see exactly how strong any of those businesses are in real dollar terms.
To put the Android activation figure into perspective, it's about equal to the number of iOS units Apple shipped in its summer quarter, when the company released its new iPhone 4. It's not entirely fair to pit Google partners HTC, Motorola Mobility (NYSE: MMI), Samsung, and others against lonely old Apple, but I'm also counting iPod Shuffle sales in Cupertino's corner. The point is, both camps are delivering stunning results. Apple’s results were even more stunning when it reported blowout earnings on its own last week.
And thanks to its advertising prowess, Google wins a little bit with every smartphone sold -- whether it's an Android, an iPhone, a Research In Motion (Nasdaq: RIMM) BlackBerry, or a Foolfone powered by hand cranks and harvested neutrinos.
I have real money and a bullish CAPS call riding on Google's continued success. If you don't want to go quite that far, just add the stock to your Foolish watchlist.
