Google Class A Earnings Call Insights: Deceleration of Google Websites and Knowledge Graph

Google, Inc. Class A (NASDAQ:GOOG) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Deceleration of Google Websites

Carlos Kirjner – Sanford Bernstein: Two questions. Last quarter, we saw a material sequential decline of Google Website revenue’s growth rate of more than 400 bps. Even after accounting for FX, this quarter, we see another deceleration, I think of about 250 bps on an FX neutral basis in the Google Website’s revenue line. Of this in a context where YouTube is growing really fast based on your comments. So what have been the major drivers of this continued deceleration of Google Websites, and should we expect the growth rate declines going forward? Secondly, on TAC, it seems that TAC for distribution as a percentage of Google websites revenues grew less than what we had seen earlier in the last several quarters in 2012. What has driven the stabilization of this TAC, of distribution TAC, and how should we think about distribution TAC in the future?

Patrick Pichette – SVP and CFO: Carlos, on the first one. You are right that there is a quite a bit of noise because of FX on the sites year-over-year between Q3 and Q4, but overall, I think that you we’re very pleased with the growth in around 20%. You’re right that in the last quarter there was a bit more headwinds than this quarter. But overall the core search business is doing well and driven really by the strength in mobile and we’re obviously additionally pleased with the YouTube business, particularly the watch page. So, despite the fact that there is a quite a bit of FX noise in there and that carries over — that FX noise does carry over to sites. Overall, I think that we’re very pleased with the overall growth. In terms of TAC, I think that that’s the case where obviously our mobile revenue is growing and it is having impact on our mix shift, and that’s really the fundamental trend that you see in TAC, rather than a change in the TAC rate of any particular partner. So, that’s really what’s going on there. But I think, as we said in the previous calls, we think of TAC in the way, there is a really positive story in TAC, which is it is distribution and it’s worth paying for. This is the positive side of our business having much more distribution of our apps across and that’s true also for mobile. So, we’re really thrilled that all of the mobile is thriving to the extent that it is, and remember that finally Pack is not a new phenomenon for us. I mean we have always dealt with distribution partners and will continue to experience and manage it to make sure that it drives revenue and profit for both parties in a balanced way. So, nothing new here but really excited by the trends.