Tag: Earnings

Google’s Twitter Update Is About To Hit

Long story short, what you say and what others say about you on Twitter may start mattering a lot more.

Do you expect to benefit from Google’s coming Twitter integration? Let us know in the comments.

We learned in February that Google and Twitter struck a new deal that will see Google indexing tweets in real time. Initial reports indicated that tweets would become visible in Google’s search results as soon as they’re posted, starting in the first half of this year. Now, we’ve got a more specific timeframe.

In a conference call to discuss Twitter’s earnings, CEO Dick Costolo revealed that the integration will begin its roll-out next month. Given that April is just about over, that could potentially be as early as this week.

“I don’t have a specific date for you, but now I can at least give you a specific month,” said Costolo. “And that Google deal is all about…that relationship is about driving our total audience strategy. The goal is that people consume content and engage with that content whether they log in or not.”

Twitter Needs More Eyeballs

Since going public in 2013, Twitter has faced immense pressure to grow its user base, and that growth has been quite slow. While the company did manage to add 14 million users over the last quarter, it only just surpassed its 300 million monthly active user milestone. For comparison, Facebook just reported 1.44 billion. Twitter has been exploring different ways to grow its MAUs, and much of that has been focused on improving the experience for logged out users.

Earlier this month, Twitter launched a homepage redesign. For logged in users, the homepage remains the user’s home timeline, but for logged out users, it’s now a user-friendly directory of categorized content. Twitter has for all intents and purposes turned its logged-out homepage into a news site.

The Google deal is another way (and likely a pretty significant one) to get people to realize more value from the service even if they’ve not been frequent users in the past. The narrative around Twitter’s stock every time the company reports its earnings is always shareholder disappointment, so the importance of the Google deal cannot be overstated from Twitter’s corporate perspective.

The two companies, as you may know, used to have a similar relationship, but when the original deal expired, the companies were unable to reach an agreement to keep it going.

“I would say that the way we think about the Google deal now without again — without going into any of the details distinct from the kind of relationship we had in the past is that we’ve got the opportunity now to drive a lot of attention to an aggregate eye balls if you will to these logged out experiences, topics and events that we plan on delivering on the front page of Twitter,” Costolo said on a previous earnings call ahead of the new homepage roll-out. “And that’s one of the reasons this makes a lot more sense for us now.”

What’s in store?

Little is known about why exactly that relationship fell apart, but the most logical explanation is that the pre-public Twitter thought it was worth more than what Google was willing to pay for access to Twitter’s firehose of realtime tweets. Google had even built a feature for its search results pages -Realtime Search – around the deal. It used to display a box of scrolling realtime results, which included tweets as well as content from other sources, on search results pages for newsy queries.

Once the Twitter deal went away, so did the feature, making it clear that the tweets were the only real valuable part of that. This also illustrated how valuable the deal was for Google, as its absence highlighted a failure of Google’s stated mission to organize the world’s information and make it universally accessible. With so much of the world’s information now flooding the internet in real time, Google could hardly make good on that mission without the access it once had.

Google isn’t expected to implement tweets the same way it used to when the new integration goes into effect.

“I don’t think that this is what Google is looking for,” search marketer Eric Enge recently told WebProNews. “I suspect that the UI impact will be minimal, but that more tweets will get indexed. However (and this is a big however), what will really be interesting to see is if Google uses tweet data to help drive personalization in one fashion or another. One simple way to do this? Simply favor content that people link to from their tweets in future related search results.”

“This type of prioritization is similar to what they do with Google+ already,” he added. “This is just speculation on my part, but I think it could be a huge win for Google if this deal gives them enough visibility to allow them to do that.”

We’ll see if either company makes a big announcement about how Google will handle tweets or if we’ll just start seeing the tweets surface more.

How Google has been using tweets

Earlier this year, Enge and his firm Stone Temple Consulting released some findings about how Google indexes tweets currently, which provides some insight into how things may change when the new deal goes into effect. His team analyzed over 133,000 tweets to see how Google indexed them, and found that about 7.4% of them were actually indexed, leaving 92.6% completely left out of the search engine.

The findings suggested that Twitter accounts with larger follower counts are getting more tweets indexed, though it may be only a correlation. Enge said he doesn’t think Google is looking specifically at follower count, but that other signals are affecting which profiles get indexed more (i.e. links to those accounts’ profiles). Either way, he noted, more value is clearly being placed on the authoritative accounts.

Out of the accounts with over a million followers that the research looked at, there were 13,435 tweets with 21% of them being indexed by Google. Out of 44,318 tweets in the 10K to 1M follower range, only 10% were indexed. For 80,842 tweets from accounts with less than 10,000 followers, just 4% were indexed.

Stone Temple said images and/or hashtags seem to increase a tweet’s chances of getting indexed with percentages registering higher than average. Mentions, on the other hand, register negatively. It also points to another of its studies, which showed that links from third-party sites have a significant impact.

“Google still loves links. 26% of the tweets with an inbound link from sites other than Twitter got indexed. That is nearly 4 times as much as the overall average rate of indexation,” Enge said in the report, adding that link quantity correlates highly with a tweet getting indexed.

They found that out of 21 accounts and 91 tweets with with over 100 inbound links, 46% were indexed. The number goes down the less inbound links there are. Those with less than ten links only saw a 7% index rate.

“What our study showed is that Google currently places minimal impact on freshness of tweets today,” Enge told WebProNews in February. “Perhaps when crawling needs to be done to discover them it’s just not worth it, and it might be that the new deal will change that. However, I suspect that it’s not the tweets themselves that Google really values the most, but the content they link to that Google wants to discover more quickly. That said, if they see a tweet getting major engagement, chances probably would go up that this tweet will show up higher in the results.”

Your reputation on the line?

Businesses may have reputation-related issues to be concerned about when the deal takes effect.

“The biggest challenge and opportunity for businesses using Twitter for customer service is that every interaction is now amplified,” Conversocial CEO Joshua March told us last month. “Whether that’s a complaint from a customer or the company’s response, the agreement between Google and Twitter places a greater spotlight on each interaction.”

“When a customer is searching on Google for a business, Tweets from customers about issues or bad service experiences could be on the front page,” he said. “If businesses have a social first approach to customer service then they can tackle these quickly and head on, creating positive engagements that will show up instead. This deal has the potential to accelerate the kind of service-related Twitter crises many brands have already experienced.”

The key word there is potential. Until we see Google’s approach to the integration, any of this is only speculative. However, these are important points for businesses to keep in mind as the integration approaches.

“For companies with a social first approach who are committed to delivering excellent, fast and authentic social customer service, the agreement between Google and Twitter has the ability to spotlight them, and make it very obvious to customers that they care,” said March. “Companies that have successfully integrated various social media into their customer service DNA should be very excited by the agreement. In addition, previously addressed concerns are now searchable, allowing customers to potentially self-help.”

Businesses are going to have to consider that any tweets related to their brands could become more visible, as could tweets from employees. In fact, even beyond the Google deal, Twitter is doing other things that could inflate visibility through search.

This goes beyond Google

Google already has a firehose deal in place with Bing.

Twitter is also working with Apple. During Tuesday’s conference call, Costolo said, “And finally, we are also working with Apple to surface great Twitter content and accounts directly in Spotlight Search on iOS and OS X, that also makes it easier and quicker to find great things on Twitter. So I would sum up by saying, there is absolutely an opportunity to go and monetize that attention and traffic. We want to make sure we iterate on the experiences to get them right first.”

Update: Apple’s spotlight search is reportedly already surfacing Twitter content.

Twitter clearly wants (and needs) to have its content surfaced as much as possible, so look for it to find other partnerships to fuel this as well.

The company is also experimenting with its own search interface, which could emphasize the power of that to more people as it continues to court and retain new users. We recently looked at a redesign it’s been testing, and while Twitter would not confirm that it will roll out to all users, it’s clearly an improvement from the existing interface, so I would be shocked if it doesn’t.

There’s not much change in terms of functionality, but the way things are laid out and labeled are significantly improved, and could draw some new attention to Twitter Search. For a deeper dive into this interface, read this.

Twitter also recently started indexing every public tweet from the last 8 years, so there’s that too.

Are you looking forward to the Google/Twitter deal taking effect? How should Google approach the data? Discuss.

Images via Wikimedia Commons, Twitter

April 29, 2015
Twitter Tops 300M Users as Earnings Fall Short

Twitter has just reported its Q1 2015 earnings, and its stock price is taking a huge hit.

The company reported $436 million in revenue, far short of the $456 million analysts projected. Despite falling short, it’s still a 74% year-over-year increase.

“While we exceeded our EBITDA target for the first quarter, revenue growth fell slightly short of our expectations due to lower-than-expected contribution from some of our newer direct response products,” said Dick Costolo, CEO of Twitter. “It is still early days for these products, and we have a strong pipeline that we believe will drive increased value for direct response advertisers in the future. We remain confident in our strategy and in Twitter’s long-term opportunity, and our focus remains on creating sustainable shareholder value by executing against our three priorities: strengthening the core, reducing barriers to consumption and delivering new apps and services.”

Twitter did top a big user milestone, however. The company reported 302 million monthly active users, up 18% year-over-year and up from 288 million the previous quarter. Still, that’s pretty slow MAU growth.

Here are some more revenue specifics:

Advertising revenue totaled $388 million, an increase of 72% year-over-year. Excluding the impact of year-over-year changes in foreign exchange rates, advertising revenue would have increased 78%; Mobile advertising revenue was 89% of total advertising revenue; Data licensing and other revenue totaled $48 million, an increase of 95% year-over-year; International revenue totaled $147 million, an increase of 109% year-over-year; International revenue was 34% of total revenue.

Twitter is projecting second quarter revenues of $470 million to $485 million, which according to Bloomberg is well below analysts’ projections of $538 million.

Twitter’s stock is crashing as of a result.

The stock began to plunge before the markets closed as the company’s disappointing earnings report leaked early. It wasn’t a hack or anything, just someone at Twitter posting the earnings a bit prematurely. The company that spilled the beans just grabbed them from Twitter’s investor relations site:

Today’s $TWTR earnings release was sourced from Twitter’s Investor Relations website https://t.co/QD6138euja. No leak. No hack.

— Selerity (@Selerity) April 28, 2015

Twitter also announced it has acquired marketing company TellApart.

For Twitter’s full earnings, head here.

April 28, 2015
Apple: iPhone, Mac Are Cannibalizing iPad

Consumers seem to be showing less and less interest in Apple’s iPad line as time goes on, and that’s not necessarily because of the device’s competition from other tablets.

In February, IDC released research finding that people bought 3 million fewer tablets in the prior quarter than they did a year before that.

The iPad specifically not only faces that trend, but also cannibalization from other Apple products, including the iPhone and Mac. Apple CEO Tim Cook saids as much on the company’s earnings call on Monday. He acknowledged the cannibalization, while maintaining that he doesn’t see this as a particularly negative thing.

He also conveyed optimism for the iPad’s future, particularly in the enterprise. Apple entered an exclusive partnership with IBM last year that sees Apple bringing IBM’s big data and analytics capabilities to the iPad and native apps for for IBM cloud services.

During the earnings call, SVP and CFO Luca Maestri noted that the iPad has consistently been the top tablet in the enterprise, and cited a recent survey from Changewave, which found that among corporate buyers planning to buy tablets in the next six months, 77% plan on buying iPads. He also said that in addition to IBM, it is working closely with over two dozen other business software and solution providers including Box, Docusign, Microstrategy, Revel, and ServiceMax to bring more solutions to the iPad.

Here’s what Cook had to say (via SeekingAlpha’s transcript of the call):

Number one, we have to stop having the situations where we sell through more than we sell in, where we don’t have to have an inventory correction. That was over a million units. Two, have we had cannibalization? The answer is yes. We’re clearly seeing cannibalization from iPhone and on the other side, from the Mac. And of course, as I’ve said before, we’ve never worried about that. It is what it is. That will play out, and at some point, it will stabilize. I’m not sure precisely when, but I’m pretty confident that it will.

The IBM partnership, I think, is in its early stages in terms of bearing fruit here, but everything I see I like on it. I’m a big believer in the ability for iPad to play in a major way in enterprise. And so I’m looking forward to seeing that play out as we move forward.

If you look at the underlying data, it makes you feel a lot better than the sales do. And so things like first time buyer rates, the latest numbers from the U.S. are somewhere around 40%. And if you look at China, they’re almost 70%. And so these numbers are not numbers that you would get if the market were saturated. And so I continue to believe, even though I’ve seen people write that, that I think that theory is not correct, and do not see that.

We also see usage numbers that are off the charts, so far above competition it’s not even in the same planet. And we see customer satisfaction at or near 100%. And so these kind of numbers, along with intent to buy numbers, everything looks fantastic, the ecommerce numbers.

And so my belief is that as the inventory plays out, as we make some continued investments in our product pipeline, which we’re doing, that we already have planned and have had planned for some time, between that, the inventory playing out, the enterprise starting to take over, I think still I believe the iPad is an extremely good business over the long term. When precisely it begins to grow again I wouldn’t want to predict, but I strongly believe that it will.

Apple has so far sold 34 million iPads in its fiscal year 2015. That’s compared to 135 million iPhones and 10 million Macs. During its Q2, it sold 12.6 million iPads compared to 16.4 million the same quarter last year.

The company did manage to set a March quarter record for iPad sales in Japan and an all-time high for sales in China.

The iPad turns five years old this month. It’s been the top seller in its category every year since.

Image via Apple

April 28, 2015
iPhone, Mac & App Store Give Apple Another Big Quarter

Apple released its financial results for its fiscal 2015 second quarter ended March 28. Thanks to strong performance by its iPhone, Mac and App Store businesses, the company posted 27% revenue growth and 40% EPS growth, setting records for the second quarter.

The company managed to exceed Wall Street expectations.

Quarterly revenue was $58 billion and quarterly net profit was $13.6 billion compared to revenue of $45.6 billion and net profit of $10.2 billion for the same quarter last year.

Gross margin was 40.8% compared to 39.3% last year, and international sales accounted for 69% of the quarter’s revenue.

Apple credits record second-quarter sales of iPhone and Mac as well as an all-time record performance from the App Store with driving the company’s impressive growth.

CEO Tim Cook said, “We are thrilled by the continued strength of iPhone, Mac and the App Store, which drove our best March quarter results ever. We’re seeing a higher rate of people switching to iPhone than we’ve experienced in previous cycles, and we’re off to an exciting start to the June quarter with the launch of Apple Watch.”

Note that he didn’t include the iPad in there as sales of those were reportedly worse than expected.

“The tremendous customer demand for our products and services in the March quarter drove revenue growth of 27 percent and EPS growth of 40 percent,” said CFO Luca Maestri. “Cash flow from operations was also outstanding at $19.1 billion.”

For its fiscal 2015 Q3, Apple is projecting revenue between $46 billion and $48 billion and gross margin between 38.5% and 39.5%.

Image via Apple

April 27, 2015

Bezos: Amazon Web Services Is A $5 Billion Business

Amazon just reported its financial results for the first quarter, including a 15% year-over-year increase in net sales at $22.72 billion.

With this report, Amazon has begun giving more financial details about its Amazon Web Services (AWS) business. And the financials on that are looking pretty good.

CEO Jeff Bezos said: “Amazon Web Services is a $5 billion business and still growing fast — in fact it’s accelerating. Born a decade ago, AWS is a good example of how we approach ideas and risk-taking at Amazon. We strive to focus relentlessly on the customer, innovate rapidly, and drive operational excellence. We manage by two seemingly contradictory traits: impatience to deliver faster and a willingness to think long term. We are so grateful to our AWS customers and remain dedicated to inventing on their behalf.”

The company recently made a handful of AWS announcements including Amazon Machine Learning, AWS Marketplace for Desktop Apps, AWS Lambda, the Amazon EC2 Container Service, the latest generation of EC2 Dense-storage instances, and faster EBS volumes.

Here’s the release in its entirety:

SEATTLE–(BUSINESS WIRE)–Apr. 23, 2015– Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its first quarter ended March 31, 2015.

Operating cash flow increased 47% to $7.84 billion for the trailing twelve months, compared with $5.35 billion for the trailing twelve months ended March 31, 2014. Free cash flow increased to $3.16 billion for the trailing twelve months, compared with $1.49 billion for the trailing twelve months ended March 31, 2014.

Common shares outstanding plus shares underlying stock-based awards totaled 483 million on March 31, 2015, compared with 476 million one year ago.

Net sales increased 15% to $22.72 billion in the first quarter, compared with $19.74 billion in first quarter 2014. Excluding the $1.3 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 22% compared to first quarter 2014.

Operating income increased 74% to $255 million in the first quarter, compared with operating income of $146 million in first quarter 2014.

Net loss was $57 million in the first quarter, or $0.12 per diluted share, compared with net income of $108 million, or$0.23 per diluted share, in first quarter 2014.

“Amazon Web Services is a $5 billion business and still growing fast — in fact it’s accelerating,” said Jeff Bezos, founder and CEO of Amazon.com. “Born a decade ago, AWS is a good example of how we approach ideas and risk-taking atAmazon. We strive to focus relentlessly on the customer, innovate rapidly, and drive operational excellence. We manage by two seemingly contradictory traits: impatience to deliver faster and a willingness to think long term. We are so grateful to our AWS customers and remain dedicated to inventing on their behalf.”

Highlights

Amazon launched Dash Button — a small button that Prime customers can place in their home and use to reorder frequently used household items. Today, customers can chose from 18 popular brands, such as Bounty, Huggies, and Clorox.

Amazon announced the Dash Replenishment Service (DRS), a new service that enables connected devices to order goods from Amazon when supplies are running low — like a coffee maker that automatically orders more coffee beans. By using DRS, device makers are able to leverage Amazon’s authentication and payment systems, customer service, and fulfillment network. Early adopters of DRS include Whirlpool, Quirky, Brother, and Brita.

Amazon announced new features for Amazon Fire TV and Fire TV Stick, including X-Ray (now available directly on your HDTV), support for a captive portal to connect to Wi-Fi at a hotel or dorm room, and new shortcuts. Amazon Fire TV also added expandable USB storage and private listening with support for Bluetooth headphones.

In just one year, Amazon Fire TV apps and games selection is up 5x, including Sling TV, Fox Sports Go, Flappy Birds Family, TED, WSJ Live, Crossy Road, and Game of Thrones – A Telltale Game Series.

Fire TV Stick launched in the U.K. and Germany, joining Amazon Fire TV. Pre-orders for Fire TV Stick on Amazon.co.uk and Amazon.de broke all previous records for Amazon devices in the first week of availability.

Amazon Echo continues to get smarter as more customers use it and provide feedback — new features include Pandora integration, home automation, support for sports scores and schedules, traffic reports and route suggestions, and voice control for customers if listening to music via Bluetooth. Amazon has released a limited preview of the Alexa SDK to enable developers, content creators, and service providers to build apps and experiences for Echo.

Amazon launched unlimited cloud storage with Amazon Cloud Drive — two new storage plans for customers to securely store new and existing content collections. The Unlimited Everything Plan provides unlimited storage for photos, videos, movies, music, and files, and the Unlimited Photos Plan provides unlimited photo storage plus 5 GB of additional storage for videos, documents, or other files — all for a low annual fee. Customers can sign up for a free 3-month trial on either plan.

Prime Now has expanded to Miami, Baltimore, Dallas, Atlanta, and Austin. Prime members can choose from tens of thousands of daily essentials through a mobile app. With Prime Now, two-hour delivery is free and one-hour delivery is available for $7.99.

Amazon Prime celebrated its 10-year anniversary with tens of millions of Prime members around the world. Prime members in the U.S. enjoy unlimited Free Two-Day Shipping on more than 20 million items, unlimited streaming of tens of thousands of movies and TV episodes with Prime Instant Video, more than one million songs and hundreds of playlists with Prime Music, unlimited photo storage with Prime Photos, and access to more than 800,000 books to borrow with the Kindle Owners’ Lending Library.

Amazon Studios announced that full seasons of Mad Dogs, The Man in the High Castle, The New Yorker Presents, and children’s shows Just Add Magic and The Stinky & Dirty Show will debut exclusively for Prime members in the U.S., U.K., and Germany. Amazon Studios also greenlit second seasons of Mozart in the Jungleand Bosch, as well as original kids series Tumble Leaf, Creative Galaxy, Annedroids, and Gortimer Gibbon’s Life on Normal Street.

Amazon introduced Amazon@Purdue, our first staffed on-campus pickup and drop-off location at Purdue University. Amazon Student and Amazon Prime members get Free One-Day Shipping on textbooks and Free One-Day Pickup on over one million items when shipped to the Amazon@Purdue location.

Amazon officially launched Write On by Kindle, an online community where writers and readers share in the creative process. Readers can check out works-in-progress — from short stories to novels — and offer feedback, or they can try their hand at writing a story themselves.

Amazon launched Amazon Home Services, a new marketplace for on-demand professional services, backed by Amazon’s Happiness Guarantee. Customers can browse, purchase, and schedule hundreds of professional services directly on Amazon.com in less than 60 seconds. Amazon Home Services features handpicked pros offering upfront pricing on pre-packaged services with helpful reviews from customers that have made verified purchases.

Poppy J. Anderson became the first German author to sell over one million Kindle books using Kindle Direct Publishing (KDP), joining the Kindle Million Club with many other internationally successful KDP authors such asJohn Locke, J.A. Konrath, and Tina Folsom.

Amazon expanded public fulfillment center tours to the U.K., Germany, France, and Poland. Visitwww.amazon.com/fctours for information on available tour locations, dates, and times.

Amazon Prime members in Spain now receive Free One-Day Shipping with their Prime subscription.

Amazon Fashion, which has emerged as a top category on Amazon.in, partnered with the Fashion Design Council of India as the official title sponsor of the 25th edition of India Fashion Week.

Amazon.in launched the Amazon Seller App, a best-in-class mobile app for sellers in India, which makes it easy and convenient for sellers to update inventory, source and list new items on Amazon.in, and respond faster to customer queries.

Amazon.in launched Kirana Now, a pilot service that delivers everyday essentials to customers within two to four hours. This local service utilizes India’s vast network of small and medium businesses to achieve quick, easy, and convenient delivery for Amazon.in customers.

Amazon China opened an Amazon international brand flagship store on Tmall, which features thousands of Amazon China’s popular, directly imported products. Additionally, Amazon Global Store selection on Amazon.cn has grown to over one million items.

AWS announced Amazon Machine Learning, a fully managed service that makes it easy for any developer to use historical data to build predictive models that can be used for a broad array of purposes, including detecting problematic transactions, preventing customer churn, and improving customer support. Amazon Machine Learning is based on the same proven, highly scalable machine learning technology used by developers acrossAmazon to generate more than 50 billion predictions a week.

AWS announced AWS Marketplace for Desktop Apps, a new category on the AWS Marketplace that makes it easy for customers to search for and buy applications for their Amazon WorkSpaces cloud-based desktops. Customers can choose from a broad selection of more than 100 applications in eleven categories, and pay by the month for the applications they use. To simplify deployment of these desktop applications, AWS also announced Amazon WorkSpaces Application Manager (Amazon WAM), a new service that packages and delivers applications to Amazon WorkSpaces.

AWS announced the general availability of AWS Lambda, a compute service that runs developers’ code in response to events and automatically manages the required compute resources, making it easy to build and manage applications that respond quickly to new information. AWS also launched several new features to make it easy for mobile developers to use Lambda for mobile, tablet, and Internet of Things applications.

AWS announced the general availability of the Amazon EC2 Container Service, a high-performance container management service that makes it easy to run distributed applications using Docker containers on AWS. AWS also added the ability to use Elastic Block Store (“EBS”) and Elastic Load Balancing (“ELB”) with the EC2 Container Service, as well as a new, flexible container scheduler that combine to make the EC2 Container Service the best place to run containers in production.

AWS introduced the latest generation of Amazon EC2 Dense-storage (D2) instances, and larger, faster Amazon Elastic Block Storage (Amazon EBS) volumes. To support very large transactional databases and big data analytics, the new Amazon EC2 D2 instances offer up to 48 TB of storage and up to 3,500 MB per second of disk read throughput, while the new Amazon EBS volumes store up to 16 TB and process up to 20,000 input/output operations per second (IOPS).

Financial Guidance

The following forward-looking statements reflect Amazon.com’s expectations as of April 23, 2015, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce, and the various factors detailed below.

Second Quarter 2015 Guidance

Net sales are expected to be between $20.6 billion and $22.8 billion, or to grow between 7% and 18% compared with second quarter 2014.

Operating income (loss) is expected to be between $(500) million and $50 million, compared to $(15) million in second quarter 2014.

This guidance includes approximately $600 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.

A conference call will be webcast live today at 2:30 p.m. PT/5:30 p.m. ET, and will be available for at least three months at www.amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company’s financial and operating results.

These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, in addition to the factors discussed above, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains, and develops commercial agreements, acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risks related to new products, services, and technologies, system interruptions, government regulation and taxation, and fraud. In addition, the current global economic climate amplifies many of these risks. More information about factors that potentially could affect Amazon.com’s financial results is included in Amazon.com’s filings with the Securities and Exchange Commission (“SEC”), including its most recent Annual Report on Form 10-K and subsequent filings.

Our investor relations website is www.amazon.com/ir and we encourage investors to use it as a way of easily finding information about us. We promptly make available on this website, free of charge, the reports that we file or furnish with the SEC, corporate governance information (including our Code of Business Conduct and Ethics), and select press releases and social media postings, which may contain material information about us, and you may subscribe to be notified of new information posted to this site.

About Amazon

Amazon.com opened on the World Wide Web in July 1995. The company is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking. Customer reviews, 1-Click shopping, personalized recommendations, Prime, Fulfillment by Amazon, AWS,Kindle Direct Publishing, Kindle, Fire phone, Fire tablets, and Fire TV are some of the products and services pioneered by Amazon.

AMAZON.COM, INC.

Consolidated Statements of Cash Flows

(in millions)

(unaudited)

Three Months Ended
March 31, Twelve Months Ended
March 31,

2015 2014 2015 2014

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 14,557 $ 8,658 $ 5,074 $ 4,481

OPERATING ACTIVITIES:

Net income (loss) (57 ) 108 (405 ) 299

Adjustments to reconcile net income (loss) to net cash from operating activities:

Depreciation of property and equipment, including internal-use software and website development, and other amortization, including capitalized content costs 1,426 1,010 5,162 3,563

Stock-based compensation 407 321 1,582 1,226

Other operating expense (income), net 44 35 139 117

Losses (gains) on sales of marketable securities, net 1 — (3 ) 2

Other expense (income), net 91 (50 ) 203 48

Deferred income taxes (2 ) (185 ) (136 ) (261 )

Excess tax benefits from stock-based compensation (22 ) (121 ) 94 (199 )

Changes in operating assets and liabilities:

Inventories 721 699 (1,172 ) (1,245 )

Accounts receivable, net and other 441 727 (1,324 ) (849 )

Accounts payable (4,249 ) (4,675 ) 2,184 1,400

Accrued expenses and other (940 ) (731 ) 500 708

Additions to unearned revenue 1,803 1,092 5,144 3,100

Amortization of previously unearned revenue (1,163 ) (732 ) (4,123 ) (2,564 )

Net cash provided by (used in) operating activities (1,499 ) (2,502 ) 7,845 5,345

INVESTING ACTIVITIES:

Purchases of property and equipment, including internal-use software and website development (871 ) (1,080 ) (4,684 ) (3,854 )

Acquisitions, net of cash acquired, and other (365 ) — (1,345 ) (208 )

Sales and maturities of marketable securities 375 593 3,131 2,299

Purchases of marketable securities (986 ) (437 ) (3,091 ) (2,487 )

Net cash provided by (used in) investing activities (1,847 ) (924 ) (5,989 ) (4,250 )

FINANCING ACTIVITIES:

Excess tax benefits from stock-based compensation 22 121 (94 ) 199

Proceeds from long-term debt 183 65 6,478 426

Repayments of long-term debt (316 ) (70 ) (760 ) (272 )

Principal repayments of capital lease obligations (502 ) (249 ) (1,537 ) (863 )

Principal repayments of finance lease obligations (39 ) (42 ) (132 ) (47 )

Net cash provided by (used in) financing activities (652 ) (175 ) 3,955 (557 )

Foreign-currency effect on cash and cash equivalents (322 ) 17 (648 ) 55

Net increase (decrease) in cash and cash equivalents (4,320 ) (3,584 ) 5,163 593

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,237 $ 5,074 $ 10,237 $ 5,074

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest on long-term debt $ 17 $ 18 $ 90 $ 102

Cash paid for income taxes (net of refunds) 55 38 194 121

Property and equipment acquired under capital leases 954 716 4,246 2,243

Property and equipment acquired under build-to-suit leases 103 126 897 852

AMAZON.COM, INC.

Consolidated Statements of Operations

(in millions, except per share data)

(unaudited)

Three Months Ended
March 31,

2015 2014

Net product sales $ 17,084 $ 15,705

Net service sales 5,633 4,036

Total net sales 22,717 19,741

Operating expenses (1):

Cost of sales 15,395 14,055

Fulfillment 2,759 2,317

Marketing 1,083 870

Technology and content 2,754 1,991

General and administrative 427 327

Other operating expense (income), net 44 35

Total operating expenses 22,462 19,595

Income (loss) from operations 255 146

Interest income 11 11

Interest expense (115 ) (42 )

Other income (expense), net (130 ) 5

Total non-operating income (expense) (234 ) (26 )

Income (loss) before income taxes 21 120

Provision for income taxes (71 ) (73 )

Equity-method investment activity, net of tax (7 ) 61

Net income (loss) $ (57 ) $ 108

Basic earnings per share $ (0.12 ) $ 0.23

Diluted earnings per share $ (0.12 ) $ 0.23

Weighted average shares used in computation of earnings per share:

Basic 465 460

Diluted 465 468

_____________

(1) Includes stock-based compensation as follows:

Fulfillment $ 90 $ 81

Marketing 35 27

Technology and content 233 169

General and administrative 49 44

AMAZON.COM, INC.

Consolidated Statements of Comprehensive Income (Loss)

(in millions)

(unaudited)

Three Months Ended
March 31,

2015 2014

Net income (loss) $ (57 ) $ 108

Other comprehensive income (loss):

Foreign currency translation adjustments, net of tax of $(1) and $0 (243 ) 27

Net change in unrealized gains on available-for-sale securities:

Unrealized gains, net of tax of $0 and $(1) 1 1

Reclassification adjustment for losses included in “Other income (expense), net,” net of tax of $0 and $0 1 —

Net unrealized gains on available-for-sale securities 2 1

Total other comprehensive income (loss) (241 ) 28

Comprehensive income (loss) $ (298 ) $ 136

AMAZON.COM, INC.

Segment Information

(in millions)

(unaudited)

Three Months Ended
March 31,

2015 2014

North America

Net sales $ 13,406 $ 10,808

Segment operating expenses (1) 12,889 10,518

Segment operating income (loss) $ 517 $ 290

International

Net sales $ 7,745 $ 7,883

Segment operating expenses (1) 7,821 7,916

Segment operating income (loss) $ (76 ) $ (33 )

AWS

Net sales $ 1,566 $ 1,050

Segment operating expenses (1) 1,301 805

Segment operating income (loss) $ 265 $ 245

Consolidated

Net sales $ 22,717 $ 19,741

Segment operating expenses (1) 22,011 19,239

Segment operating income (loss) 706 502

Stock-based compensation (407 ) (321 )

Other operating income (expense), net (44 ) (35 )

Income (loss) from operations 255 146

Total non-operating income (expense) (234 ) (26 )

Provision for income taxes (71 ) (73 )

Equity-method investment activity, net of tax (7 ) 61

Net income (loss) $ (57 ) $ 108

Segment Highlights:

Y/Y net sales growth:

North America 24 % 23 %

International (2 ) 18

AWS 49 69

Consolidated 15 23

Net sales mix:

North America 59 % 55 %

International 34 40

AWS 7 5

Consolidated 100 % 100 %

______________________________

(1) Excludes stock-based compensation and “Other operating expense (income), net,” which are not allocated to segments.

AMAZON.COM, INC.

Supplemental Net Sales Information

(in millions)

(unaudited)

Three Months Ended
March 31,

2015 2014

Net Sales:

North America

Media $ 2,969 $ 2,825

Electronics and other general merchandise 10,250 7,829

Other (1) 187 154

Total North America $ 13,406 $ 10,808

International

Media $ 2,320 $ 2,642

Electronics and other general merchandise 5,378 5,188

Other (1) 47 53

Total International $ 7,745 $ 7,883

Year-over-year Percentage Growth:

North America

Media 5 % 12 %

Electronics and other general merchandise 31 28

Other 22 18

Total North America 24 23

International

Media (12 )% 4 %

Electronics and other general merchandise 4 27

Other (12 ) 13

Total International (2 ) 18

Year-over-year Percentage Growth, excluding the effect of foreign exchange rates:

North America

Media 5 % 13 %

Electronics and other general merchandise 31 28

Other 22 19

Total North America 24 23

International

Media 2 % 4 %

Electronics and other general merchandise 21 26

Other 2 11

Total International 14 18

______________________________

(1) Includes sales from non-retail activities, such as certain advertising services and our co-branded credit card agreements.

AMAZON.COM, INC.

Consolidated Balance Sheets

(in millions, except per share data)

March 31, 2015 December 31, 2014

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents $ 10,237 $ 14,557

Marketable securities 3,544 2,859

Inventories 7,369 8,299

Accounts receivable, net and other 4,772 5,612

Total current assets 25,922 31,327

Property and equipment, net 17,736 16,967

Goodwill 3,491 3,319

Other assets 2,926 2,892

Total assets $ 50,075 $ 54,505

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable $ 11,917 $ 16,459

Accrued expenses and other 8,840 9,807

Unearned revenue 2,420 1,823

Total current liabilities 23,177 28,089

Long-term debt 8,257 8,265

Other long-term liabilities 7,768 7,410

Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.01 par value:

Authorized shares — 500

Issued and outstanding shares — none — —

Common stock, $0.01 par value:

Authorized shares — 5,000

Issued shares — 489 and 488

Outstanding shares — 466 and 465 5 5

Treasury stock, at cost (1,837 ) (1,837 )

Additional paid-in capital 11,565 11,135

Accumulated other comprehensive loss (752 ) (511 )

Retained earnings 1,892 1,949

Total stockholders’ equity 10,873 10,741

Total liabilities and stockholders’ equity $ 50,075 $ 54,505

AMAZON.COM, INC.

Supplemental Financial Information and Business Metrics

(in millions, except per share data)

(unaudited)

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Y/Y %
Change

Cash Flows and Shares

Operating cash flow — trailing twelve months (TTM) $ 5,345 $ 5,327 $ 5,705 $ 6,842 $ 7,845 47 %

Purchases of property and equipment (incl. internal-use software & website development) — TTM $ 3,854 $ 4,288 $ 4,628 $ 4,893 $ 4,684 22 %

Principal repayments of capital lease obligations — TTM $ 863 $ 969 $ 1,103 $ 1,285 $ 1,537 78 %

Principal repayments of finance lease obligations — TTM $ 47 $ 60 $ 73 $ 135 $ 132 178 %

Property and equipment acquired under capital leases — TTM $ 2,243 $ 2,716 $ 3,347 $ 4,008 $ 4,246 89 %

Free cash flow — TTM (1) $ 1,491 $ 1,039 $ 1,077 $ 1,949 $ 3,161 112 %

Free cash flow — TTM Y/Y growth (decline) 744 % 292 % 178 % (4 )% 112 % N/A

Invested capital (2) $ 16,681 $ 17,743 $ 18,715 $ 21,021 $ 23,090 38 %

Return on invested capital (3) 9 % 6 % 6 % 9 % 14 % N/A

Free cash flow less lease principal repayments — TTM (4) $ 581 $ 10 $ (99 ) $ 529 $ 1,492 157 %

Free cash flow less finance principal lease repayments and capital acquired under capital leases — TTM (5) $ (799 ) $ (1,737 ) $ (2,343 ) $ (2,194 ) $ (1,217 ) 52 %

Common shares and stock-based awards outstanding 476 480 481 483 483 2 %

Common shares outstanding 460 462 463 465 466 1 %

Stock awards outstanding 16 18 18 18 17 11 %

Stock awards outstanding — % of common shares outstanding 3.5 % 3.9 % 3.9 % 3.8 % 3.8 % N/A

Results of Operations

Worldwide (WW) net sales $ 19,741 $ 19,340 $ 20,579 $ 29,328 $ 22,717 15 %

WW net sales — Y/Y growth, excluding F/X 23 % 22 % 20 % 18 % 22 % N/A

WW net sales — TTM $ 78,124 $ 81,759 $ 85,246 $ 88,988 $ 91,963 18 %

WW net sales — TTM Y/Y growth, excluding F/X 24 % 23 % 22 % 20 % 20 % N/A

Operating income (loss) $ 146 $ (15 ) $ (544 ) $ 591 $ 255 74 %

Operating income/loss — Y/Y growth (decline), excluding F/X (29 )% (158 )% N/A 22 % 90 % N/A

Operating margin — % of WW net sales 0.7 % (0.1 )% (2.6 )% 2.0 % 1.1 % N/A

Operating income — TTM $ 710 $ 617 $ 97 $ 178 $ 287 (60 )%

Operating income — TTM Y/Y growth (decline), excluding F/X 7 % (11 )% (94 )% (79 )% (56 )% N/A

Operating margin — TTM % of WW net sales 0.9 % 0.8 % 0.1 % 0.2 % 0.3 % N/A

Net income (loss) $ 108 $ (126 ) $ (437 ) $ 214 $ (57 ) (153 )%

Net income (loss) per diluted share $ 0.23 $ (0.27 ) $ (0.95 ) $ 0.45 $ (0.12 ) (152 )%

Net income (loss) — TTM $ 299 $ 181 $ (216 ) $ (241 ) $ (405 ) (236 )%

Net income (loss) per diluted share — TTM $ 0.64 $ 0.39 $ (0.47 ) $ (0.52 ) $ (0.88 ) (234 )%

______________________________

(1) “Free cash flow” is defined as net cash provided by operating activities less cash expenditures for purchases of property and equipment, including internal-use software and website development.

(2) Average Total Assets minus Current Liabilities (excluding current portion of Long-Term Debt) over five quarter ends.

(3) TTM Free Cash Flow divided by Invested Capital.

(4) “Free cash flow less lease principal repayments” is defined as net cash provided by operating activities, less (i) purchases of property and equipment, including internal-use software and website development, (ii) principal repayments of capital lease obligations, and (iii) principal repayments of finance lease obligations. Free cash flow less lease principal repayments approximates the actual payments of cash for our capital and finance leases.

(5) “Free cash flow less finance principal lease repayments and capital acquired under capital leases” is defined as net cash provided by operating activities, less (i) purchases of property and equipment, including internal-use software and website development, (ii) principal repayments of finance lease obligations, and (iii) property and equipment acquired under capital leases. In this measure, property and equipment acquired under capital leases is reflected as if these assets had been purchased for cash, which is not the case as these assets have been leased.

AMAZON.COM, INC.

Supplemental Financial Information and Business Metrics

(in millions)

(unaudited)

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Y/Y %
Change

Segments

North America Segment:

Net sales $ 10,808 $ 10,994 $ 11,699 $ 17,333 $ 13,406 24 %

Net sales — Y/Y growth, excluding F/X 23 % 25 % 23 % 21 % 24 % N/A

Net sales — TTM $ 50,834 $ 53,432 23 %

Operating income (loss) $ 290 $ 329 $ (60 ) $ 733 $ 517 79 %

Operating income/loss — Y/Y growth (decline), excluding F/X 77 % N/A

Operating margin — % of North America net sales 2.7 % 3.0 % (0.5 )% 4.2 % 3.9 % N/A

Operating income — TTM $ 1,292 $ 1,520 N/A

Operating margin — TTM % of North America net sales 2.5 % 2.8 % N/A

International Segment:

Net sales $ 7,883 $ 7,341 $ 7,711 $ 10,575 $ 7,745 (2 )%

Net sales — Y/Y growth, excluding F/X 18 % 14 % 13 % 12 % 14 % N/A

Net sales — TTM $ 33,510 $ 33,371 7 %

Net sales — TTM % of WW net sales 38 % 36 % N/A

Operating income (loss) $ (33 ) $ (2 ) $ (174 ) $ 65 $ (76 ) 137 %

Operating income/loss — Y/Y growth (decline), excluding F/X N/A N/A

Operating margin — % of International net sales (0.4 )% — % (2.3 )% 0.6 % (1.0 )% N/A

Operating income (loss) — TTM $ (144 ) $ (188 ) N/A

Operating margin — TTM % of International net sales (0.4 )% (0.6 )% N/A

AWS Segment:

Net sales $ 1,050 $ 1,005 $ 1,169 $ 1,420 $ 1,566 49 %

Net sales — Y/Y growth, excluding F/X 69 % 43 % 43 % 47 % 49 % N/A

Net sales — TTM $ 4,644 $ 5,160 46 %

Net sales — TTM % of WW net sales 5 % 6 % N/A

Operating income $ 245 $ 77 $ 98 $ 240 $ 265 8 %

Operating income — Y/Y growth (decline), excluding F/X (13 )% N/A

Operating margin — % of AWS net sales 23.3 % 7.7 % 8.4 % 16.9 % 16.9 % N/A

Operating income — TTM $ 660 $ 680 N/A

Operating margin — TTM % of AWS net sales 14.2 % 13.2 % N/A

Consolidated Segments:

Operating expenses (6) $ 19,239 $ 18,936 $ 20,715 $ 28,290 $ 22,011 14 %

Operating expenses — TTM (6) $ 76,069 $ 79,710 $ 83,599 $ 87,180 $ 89,951 18 %

Operating income (loss) $ 502 $ 404 $ (136 ) $ 1,038 $ 706 41 %

Operating income/loss — Y/Y growth (decline), excluding F/X 10 % (9 )% (151 )% 22 % 45 % N/A

Operating margin — % of Consolidated net sales 2.5 % 2.1 % (0.7 )% 3.5 % 3.1 % N/A

Operating income — TTM $ 2,055 $ 2,049 $ 1,647 $ 1,808 $ 2,012 (2 )%

Operating income — TTM Y/Y growth (decline), excluding F/X 20 % 14 % (12 )% (10 )% (1 )% N/A

Operating margin — TTM % of Consolidated net sales 2.6 % 2.5 % 1.9 % 2.0 % 2.2 % N/A

______________________________

(6) Represents cost of sales, fulfillment, marketing, technology and content, and general and administrative operating expenses, excluding stock-based compensation.

AMAZON.COM, INC.

Supplemental Financial Information and Business Metrics

(in millions, except inventory turnover, accounts payable days and employee data)

(unaudited)

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Y/Y %
Change

Supplemental

Supplemental North America Segment Net Sales:

Media $ 2,825 $ 2,464 $ 2,734 $ 3,544 $ 2,969 5 %

Media — Y/Y growth, excluding F/X 13 % 14 % 5 % 1 % 5 % N/A

Media — TTM $ 11,121 $ 11,411 $ 11,536 $ 11,567 $ 11,711 5 %

Electronics and other general merchandise $ 7,829 $ 8,366 $ 8,793 $ 13,529 $ 10,250 31 %

Electronics and other general merchandise — Y/Y growth, excluding F/X 28 % 29 % 31 % 27 % 31 % N/A

Electronics and other general merchandise — TTM $ 31,686 $ 33,575 $ 35,636 $ 38,517 $ 40,938 29 %

Electronics and other general merchandise — TTM % of North America net sales 73 % 74 % 74 % 76 % 77 % N/A

Other $ 154 $ 164 $ 172 $ 260 $ 187 22 %

Supplemental International Segment Net Sales:

Media $ 2,642 $ 2,380 $ 2,510 $ 3,406 $ 2,320 (12 )%

Media — Y/Y growth, excluding F/X 4 % 4 % 3 % (1 )% 2 % N/A

Media — TTM $ 11,004 $ 11,160 $ 11,246 $ 10,938 $ 10,615 (4 )%

Electronics and other general merchandise $ 5,188 $ 4,912 $ 5,160 $ 7,109 $ 5,378 4 %

Electronics and other general merchandise — Y/Y growth, excluding F/X 26 % 20 % 19 % 19 % 21 % N/A

Electronics and other general merchandise — TTM $ 19,919 $ 20,894 $ 21,737 $ 22,369 $ 22,559 13 %

Electronics and other general merchandise — TTM % of International net sales 64 % 65 % 65 % 67 % 68 % N/A

Other $ 53 $ 49 $ 41 $ 60 $ 47 (12 )%

Balance Sheet

Cash and marketable securities $ 8,666 $ 7,986 $ 6,883 $ 17,416 $ 13,781 59 %

Inventory, net — ending $ 6,716 $ 6,644 $ 7,316 $ 8,299 $ 7,369 10 %

Inventory turnover, average — TTM 9.1 9.1 8.9 8.6 8.8 (3 )%

Property and equipment, net $ 12,267 $ 14,089 $ 15,702 $ 16,967 $ 17,736 45 %

Accounts payable — ending $ 10,590 $ 10,457 $ 11,811 $ 16,459 $ 11,917 13 %

Accounts payable days — ending 68 71 74 73 70 3 %

Other

WW shipping revenue $ 849 $ 889 $ 1,048 $ 1,701 $ 1,299 53 %

WW shipping costs $ 1,829 $ 1,812 $ 2,020 $ 3,049 $ 2,309 26 %

WW net shipping costs $ 980 $ 923 $ 972 $ 1,348 $ 1,010 3 %

WW net shipping costs — % of net sales (7) 5.2 % 5.0 % 5.0 % 4.8 % 4.8 % N/A

Employees (full-time and part-time; excludes contractors & temporary personnel) 124,600 132,600 149,500 154,100 165,000 32 %

______________________________

(7) Includes North America and International segment net sales.

Amazon.com, Inc.
Certain Definitions

Customer Accounts

References to customers mean customer accounts, which are unique e-mail addresses, established either when a customer places an order or when a customer orders from other sellers on our websites. Customer accounts exclude certain customers, including customers associated with certain of our acquisitions, Amazon Payments customers, AWS customers, and the customers of select companies with whom we have a technology alliance or marketing and promotional relationship. Customers are considered active when they have placed an order during the preceding twelve-month period.

Seller Accounts

References to sellers means seller accounts, which are established when a seller receives an order from a customer account. Sellers are considered active when they have received an order from a customer during the preceding twelve-month period.

AWS Customers

References to AWS customers mean unique AWS customer accounts, which are unique e-mail addresses that are eligible to use AWS services. This includes AWS accounts in the AWS free tier. Multiple users accessing AWS services via one account are counted as a single account. Customers are considered active when they have had AWS usage activity during the preceding one-month period.

Units

References to units mean physical and digital units sold (net of returns and cancellations) by us and sellers atAmazon domains worldwide — for example www.amazon.com, www.amazon.co.uk, www.amazon.de,www.amazon.co.jp, www.amazon.fr, www.amazon.ca, www.amazon.cn, www.amazon.it, www.amazon.es,www.amazon.com.br, www.amazon.in, www.amazon.com.mx, www.amazon.com.au, www.amazon.nl,www.diapers.com, www.shopbop.com and www.zappos.com — as well as Amazon-owned items sold through non-Amazon domains. Units sold are paid units and do not include units associated with AWS, certain acquisitions, rental businesses, or advertising businesses, or Amazon gift cards.

AMAZON.COM, INC.
Supplemental Segment Financial Information

Effective Q1 2015, Amazon.com, Inc. has three segments: North America, International, and AWS. These segments reflect changes in the way Amazon.com, Inc. evaluates its business performance and manages its operations. Historical results for 2014 and 2013 for the North America, International, and AWS segments are presented below.

The North America segment consists primarily of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused websites such as www.amazon.com, www.amazon.ca, and www.amazon.com.mx. This segment includes export sales from these websites.

The International segment consists primarily of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through internationally-focused websites. This segment includes export sales from these internationally-focused websites (including export sales from these sites to customers in the U.S. and Canada), but excludes export sales from our North American websites.

The AWS segment consists of amounts earned from sales of compute, storage, database, and other AWS service offerings for start-ups, enterprises, government agencies, and academic institutions.

We allocate to segment results the operating expenses “Fulfillment,” “Marketing,” “Technology and content,” and “General and administrative” based on usage, which is generally reflected in the segment in which the costs are incurred. In conjunction with creating a separate reportable segment for AWS, we have made other allocation changes among the North America and International segments to reflect the relative contribution provided to both segments. The majority of technology infrastructure costs are allocated to the AWS segment based on usage. The majority of the remaining non-infrastructure technology costs are incurred in the U.S. and are allocated to our North America segment. We exclude from our allocations the portions of these operating expense lines attributable to stock-based compensation. We do not allocate the line item “Other operating expense (income), net” to our segment operating results. There are no internal revenue transactions between our reportable segments.

AMAZON.COM, INC.

Supplemental Segment Financial Information

Two years of historical financial information on reportable segments and reconciliation to consolidated net income (loss) using the new segment presentation are as follows (in millions):

Year Ended Three Months Ended Year Ended

December 31,
2014 December 31,
2014 September 30,
2014 June 30,
2014 March 31,
2014 December 31,
2013

North America

Net sales $ 50,834 $ 17,333 $ 11,699 $ 10,994 $ 10,808 $ 41,410

Segment operating expenses (1) 49,542 16,600 11,759 10,665 10,518 40,244

Segment operating income (loss) $ 1,292 $ 733 $ (60 ) $ 329 $ 290 $ 1,166

International

Net sales $ 33,510 $ 10,575 $ 7,711 $ 7,341 $ 7,883 $ 29,934

Segment operating expenses (1) 33,654 10,510 7,885 7,343 7,916 29,780

Segment operating income (loss) $ (144 ) $ 65 $ (174 ) $ (2 ) $ (33 ) $ 154

AWS

Net sales $ 4,644 $ 1,420 $ 1,169 $ 1,005 $ 1,050 $ 3,108

Segment operating expenses (1) 3,984 1,180 1,071 928 805 2,435

Segment operating income $ 660 $ 240 $ 98 $ 77 $ 245 $ 673

Consolidated

Net sales $ 88,988 $ 29,328 $ 20,579 $ 19,340 $ 19,741 $ 74,452

Segment operating expenses (1) 87,180 28,290 20,715 18,936 19,239 72,459

Segment operating income (loss) 1,808 1,038 (136 ) 404 502 1,993

Stock-based compensation (1,497 ) (408 ) (377 ) (391 ) (321 ) (1,134 )

Other operating income (expense), net (133 ) (39 ) (31 ) (28 ) (35 ) (114 )

Income (loss) from operations 178 591 (544 ) (15 ) 146 745

Total non-operating income (expense) (289 ) (162 ) (90 ) (12 ) (26 ) (239 )

Benefit (provision) for income taxes (167 ) (205 ) 205 (94 ) (73 ) (161 )

Equity-method investment activity, net of tax 37 (10 ) (8 ) (5 ) 61 (71 )

Net income (loss) $ (241 ) $ 214 $ (437 ) $ (126 ) $ 108 $ 274

Segment Highlights:

Y/Y net sales growth:

North America 23 % 21 % 23 % 25 % 23 % 26 %

International 12 3 14 18 18 14

AWS 49 47 43 43 69 69

Consolidated 20 15 20 23 23 22

Net sales mix:

North America 57 % 59 % 57 % 57 % 55 % 56 %

International 38 36 37 38 40 40

AWS 5 5 6 5 5 4

Consolidated 100 % 100 % 100 % 100 % 100 % 100 %

_________________

(1) Excludes stock-based compensation and “Other operating expense (income), net” which are not allocated to segments.

AMAZON.COM, INC.

Supplemental Segment Financial Information

Segment Assets

Total segment assets exclude corporate assets, such as cash and cash equivalents, marketable securities, other long-term investments, corporate facilities, goodwill and other acquired intangible assets, capitalized internal-use software and website development costs, and tax assets. Technology infrastructure assets are allocated among the segments based on usage, with the majority allocated to the AWS segment. Total segment assets reconciled to consolidated amounts are as follows (in millions):

December 31,

2014 2013

North America (1) $ 13,257 $ 9,991

International (1) 6,747 6,199

AWS (2) 6,981 3,840

Corporate 27,520 20,129

Consolidated $ 54,505 $ 40,159

_____________________________

(1) North America and International segment assets primarily consist of inventory, accounts receivable, and property and equipment.

(2) AWS segment assets primarily consist of property and equipment and accounts receivable.

Property and Equipment, Net

Property and equipment, net by segment is as follows (in millions):

December 31,

2014 2013

North America $ 5,373 $ 3,477

International 2,000 1,549

AWS 6,043 3,253

Corporate 3,551 2,670

Consolidated $ 16,967 $ 10,949

Property and Equipment Additions

Total property and equipment additions by segment are as follows (in millions):

December 31,

2014 2013

North America (1) $ 2,833 $ 2,326

International (1) 767 851

AWS (2) 4,295 2,215

Corporate 1,586 981

Consolidated $ 9,481 $ 6,373

___ _ ____________

(1) Includes property and equipment added under capital leases of $887 million and $555 million in 2014 and 2013, and under other financing arrangements of $599 million and $715 million in 2014 and 2013.

(2) Includes property and equipment added under capital leases of $3.0 billion and $1.3 billion in 2014 and 2013, and under other financing arrangements of $62 million and $67 million in 2014 and 2013.

AMAZON.COM, INC.

Supplemental Segment Financial Information

Depreciation Expense

Depreciation expense, including amortization of capitalized internal-use software and website development costs and other corporate property and equipment depreciation expense, are allocated to all segments based on usage. Total depreciation expense, by segment, is as follows (in millions):

Year Ended December 31,

2014 2013

North America $ 1,203 $ 914

International 740 583

AWS 1,673 963

Consolidated $ 3,616 $ 2,460

Source: Amazon.com, Inc.

Image via Wikimedia Commons

April 23, 2015

Google Posts 12% Q1 Revenue Increase At $17.3B

Google just reported its Q1 financial results, with revenue up 12% year-over-year at $17.3 billion.

“Excluding the net impact of foreign currency headwinds, revenue grew a healthy 17% year on year,” said outgoing CFO Patrick Pichette. “We continue to see great momentum in our mobile advertising business and opportunities with brand advertisers.”

Google reported EPS of $6.57, which was slightly lower than forecasts.

Aggregate paid clicks were up 1% quarter-over-quarter and 13% year-over-year. Paid clicks on Google sites were up 25% year-over-year, while paid clicks on network sites were up 12%.

Average cost-per-click increased 7% year-over-year and 5% quarter-over-quarter. On Google sites it was up 13% year-over-year and 3% quarter-over-quarter. On network sites it was up 2% year-over-year and 11% quarter-over-quarter.

Here’s the release in its entirety:

MOUNTAIN VIEW, Calif. – April 23, 2015 – Google Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter ended March 31, 2015.

	Three Months Ended March 31, 2015			Change from Q4 2014 to Q1 2015 (QoQ)
Google websites	$	11,932	14	%	(4)	%
Google Network Members’ websites*		3,576	1	%	(8)	%
Total advertising revenues**		15,508	11	%	(5)	%
Other revenues*		1,750	23	%	(2)	%
Revenues	$	17,258	12	%	(5)	%
*Prior period amounts have been adjusted to reflect the reclassification primarily related to DoubleClick ad serving software revenues from Other Revenues to Advertising Revenues from Google Network Members’ Websites to conform with our current period presentation.
**Advertising revenues are generally reported on a gross basis, consistent with GAAP, without deducting TAC.

	Change from Q1 2014 to Q1 2015 (YoY)
Aggregate paid clicks	13	%	(1)	%
Paid clicks on Google websites	25	%	(3)	%
Paid clicks on Google Network Members’ websites	(12)	%	4	%

Aggregate cost-per-click	(7)	%	(5)	%
Cost-per-click on Google websites	(13)	%	(3)	%
Cost-per-click on Google Network Members’ websites	2	%	(11)	%

	Three Months Ended March 31, 2014		Three Months Ended March 31, 2015
Cash, cash equivalents, and marketable securities	$	59,379		$	65,436
Net cash provided by operating activities	$	4,391		$	6,617
Capital expenditures*	$	2,345		$	2,927
Free cash flow	$	2,046		$	3,690
Effective tax rate		18	%		22	%
Headcount		46,170			55,419
*For Q1 2015, our capital expenditures are primarily related to production equipment, data center construction, and facilities. We expect to continue to make significant capital expenditures.

“Google’s first quarter revenue was $17.3 billion, up 12% year on year. Excluding the net impact of foreign currency headwinds, revenue grew a healthy 17% year on year,” said Patrick Pichette, CFO of Google. “We continue to see great momentum in our mobile advertising business and opportunities with brand advertisers.”

Q1 2015 Financial Summary

Operating income, operating margin, net income, and earnings per share (EPS) are reported on a GAAP and non-GAAP basis. Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense from continuing operations. Non-GAAP net income and non-GAAP diluted EPS exclude SBC expense from continuing operations, net of the related tax benefits, as well as Net Loss from Discontinued Operations. These non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, and non-GAAP constant currency revenues and growth, are described and reconciled to the corresponding GAAP measures at the end of this release. The following summarizes our consolidated financial results for the quarter ended March 31, 2015 (in millions, except for per share and shares outstanding information; unaudited):

Three Months Ended March 31, 2014 Three Months Ended March 31, 2015

Revenues $ 15,420 $ 17,258

Increase in revenues year over year 19 % 12 %

Traffic acquisition costs (TAC) $ 3,232 $ 3,345

GAAP operating income $ 4,115 $ 4,447

GAAP operating margin 27 % 26 %

Non-GAAP operating income $ 4,954 $ 5,650

Non-GAAP operating margin 32 % 33 %

GAAP net income* $ 3,452 $ 3,586

Non-GAAP net income $ 4,299 $ 4,532

GAAP diluted EPS* $ 5.04 $ 5.20

Non-GAAP diluted EPS $ 6.27 $ 6.57

Diluted shares (in thousands) 685,212 689,498

*GAAP net income and diluted EPS include Net Loss from Discontinued Operations for the three months ended March 31, 2014.

Q1 2015 Financial Highlights

Revenues and Monetization

Revenues by source are presented in the table below (in millions; unaudited):

Three Months Ended March 31, 2015 Change from Q1 2014 to Q1 2015 (YoY) Change from Q4 2014 to Q1 2015 (QoQ)

Google websites $ 11,932 14 % (4) %

Google Network Members’ websites* 3,576 1 % (8) %

Total advertising revenues** 15,508 11 % (5) %

Other revenues* 1,750 23 % (2) %

Revenues $ 17,258 12 % (5) %

*Prior period amounts have been adjusted to reflect the reclassification primarily related to DoubleClick ad serving software revenues from Other Revenues to Advertising Revenues from Google Network Members’ Websites to conform with our current period presentation.

**Advertising revenues are generally reported on a gross basis, consistent with GAAP, without deducting TAC.

Excluding hedging gains of $311 million related to our foreign exchange risk management program, had foreign exchange rates remained constant from the first quarter of 2014 through the first quarter of 2015, our revenues in the first quarter of 2015 would have been $795 million higher. Additionally, our constant currency revenue growth in the first quarter of 2015 was 17% year over year. Our constant currency revenues, which exclude the foreign exchange impact on our current period revenues and hedging gains, are presented in the financial tables following this release as well as in the accompanying materials on the Investor Relations website.

Paid clicks and cost-per-click information is in the table below (unaudited):

Change from Q1 2014 to Q1 2015 (YoY) Change from Q4 2014 to Q1 2015 (QoQ)

Aggregate paid clicks 13 % (1) %

Paid clicks on Google websites 25 % (3) %

Paid clicks on Google Network Members’ websites (12) % 4 %

Aggregate cost-per-click (7) % (5) %

Cost-per-click on Google websites (13) % (3) %

Cost-per-click on Google Network Members’ websites 2 % (11) %

Costs and Expenses

Traffic acquisition costs (TAC), other cost of revenues, operating expenses, stock-based compensation expense, and depreciation and amortization expense are presented in the table below (in millions; unaudited):

Three Months Ended March 31, 2014 Three Months Ended March 31, 2015

TAC to Google Network Members $ 2,387 $ 2,432

TAC to distribution partners $ 845 $ 913

Total TAC $ 3,232 $ 3,345

TAC to Google Network Members as % of Google Network Members’ revenues* 68 % 68 %

TAC to distribution partners as % of Google Website revenues 8 % 8 %

Total TAC as % of advertising revenues* 23 % 22 %

Other cost of revenues $ 2,729 $ 3,011

Other cost of revenue as % of revenues 18 % 17 %

Operating expenses (other than cost of revenues) $ 5,344 $ 6,455

Operating expenses as % of revenues 35 % 37 %

Stock-based compensation expense** $ 839 $ 1,203

Tax benefit related to stock-based compensation expense $ (190) $ (257)

Depreciation, amortization, and impairment charges** $ 1,086 $ 1,177

*Prior period amounts have been adjusted to reflect the reclassification primarily related to DoubleClick ad serving software revenues from Other Revenues to Advertising Revenues from Google Network Members’ Websites to conform with our current period presentation.

**Included in Cost of revenues and Operating expenses. Excludes impact from discontinued operations for the three months ended March 31, 2014.

Supplemental Information (in millions except for headcount data; unaudited)

Three Months Ended March 31, 2014 Three Months Ended March 31, 2015

Cash, cash equivalents, and marketable securities $ 59,379 $ 65,436

Net cash provided by operating activities $ 4,391 $ 6,617

Capital expenditures* $ 2,345 $ 2,927

Free cash flow $ 2,046 $ 3,690

Effective tax rate 18 % 22 %

Headcount 46,170 55,419

*For Q1 2015, our capital expenditures are primarily related to production equipment, data center construction, and facilities. We expect to continue to make significant capital expenditures.

Adjustment Payment in relation to Class C Capital Stock Distribution

In January 2014, our board of directors approved the distribution of shares of Class C capital stock as a dividend to our holders of Class A and Class B common stock (the Stock Split). The Stock Split had a record date of March 27, 2014 and a payment date of April 2, 2014. In accordance with a settlement of litigation involving the authorization to distribute Class C capital stock, at the close of trading on April 2, 2015, the last trading day of the 365 day period following the first date the Class C shares traded on NASDAQ (Lookback Period), we determined that a payment (the Adjustment Payment) in the amount of $522 million was due. The amount of the Adjustment Payment was based on the percentage difference that developed between the volume-weighted average price of Class A and Class C shares during the Lookback Period, as supplied by NASDAQ Data-on-Demand, and is payable to holders of Class C capital stock as of the end of the Lookback Period in cash, Class A common stock, Class C capital stock, or a combination thereof, at the discretion of our board of directors. On April 22, 2015, our board of directors approved the Adjustment Payment to be paid on or about May 4, 2015 in shares of Class C capital stock, and cash in lieu of any fractional shares of Class C capital stock.

WEBCAST AND CONFERENCE CALL INFORMATION

A live audio webcast of Google’s first quarter 2015 earnings release call will be available at https://investor.google.com/webcast.html. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, the financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available on that site.

We also announce investor information, including news and commentary about our business and financial performance, SEC filings, notices of investor events and our press and earnings releases, on our investor relations website (https://investor.google.com).

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties. These statements include statements regarding our investments in areas of strategic focus and our plans to make significant capital expenditures. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, unforeseen changes in our hiring patterns and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2014, which is on file with the SEC and are available on our investor relations website at investor.google.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. All information provided in this release and in the attachments is as of April 23, 2015, and we undertake no duty to update this information unless required by law.

ABOUT NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP diluted EPS, free cash flow, non-GAAP constant currency revenues, and non-GAAP constant currency revenue growth. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results, such as our revenues excluding the impact for foreign currency fluctuations or our operating performance excluding not only non-cash charges, such as SBC, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity as well as comparisons to our competitors’ operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures,” “Reconciliation from net cash provided by operating activities to free cash flow,” and “Reconciliation from GAAP revenues to non-GAAP constant currency revenues” included at the end of this release.

Image via Google

April 23, 2015

Facebook Talks ‘Anthology’ And Other Video Efforts

Facebook just announced the launch of Anthology, a new marketing program that gives brands access to a group of well-known video publishers to improve the quality of video ads.

This group of publishers includes Vice Media, Vox Media, The Onion, Funny or Die, Electus Digital, Oh My Disney, and Tastemade.

“As video consumption continues to grow on Facebook, it is important to keep videos relevant and engaging — including video ads from brands,” a spokesperson for Facebook tells WebProNews. “Given this trend, today Facebook is announcing Anthology, a Facebook Marketing Partner program which brings together leading video publishers and Facebook’s Creative Shop to produce outstanding advertising content that drives value for brands and resonates with people.”

The publishers, according to Facebook, will “lend their creative storytelling expertise and video production services to brands, and as Facebook Marketing Partners, Anthology publishers are trained on how to get the most out of Facebook to drive business results.”

The spokesperson adds, “In addition to creative ideation and development, the Anthology program leverages Facebook’s unique insights and scale; for each Anthology campaign, Facebook’s Creative Shop partners with brands, agencies and publishers to provide audience planning, insights, distribution plans and measurement.”

Facebook reported its Q1 earnings on Wednesday, and during the conference call, the company talked a great deal about video. For one, CEO Mark Zuckerberg said Facebook reached a new milestone of over 4 billion daily video views in Q1. This was apparently helped by a recently launched embedded video player. He said 80,000 videos have been embedded on third-party sites.

“Looking ahead, we believe video will play a significant role in bringing more marketers to mobile,” said COO Sheryl Sandberg. “More than 75% of global video views on Facebook occur on mobile – and we believe mobile video will become more important to marketers over time. Lionsgate’s Age of Adaline premiere is a great example. To promote the film, Lionsgate targeted young women on Instagram with multiple video ads over the last few weeks. This week, since the film opens on Friday, they will be retargeting the audience from the Instagram campaign on Facebook. We expect more marketers to put mobile video at the heart of their campaigns in the future, and we’re well positioned to drive this shift.”

She later said, “We’ve always believed that the format of our ads should follow the format of what consumers are doing on Facebook. So many years ago when the homepage ticker was in vogue, we never did that. And so the fact that there’s so much consumer video, that gives us the opportunity to do more marketing video as well. It’s still early days and we’re very focused on quality and it’s worth noting that not all of the revenue from video is incremental, because the video ads take the place of other ads that we would have served into News Feed. That said, we’re really excited about the opportunity I talked about, increasing the entertainment and media vertical and brand marketers, particularly. But I think all marketers have the opportunity to do video, and that’s pretty exciting, including SMBs who would never be able to hire a film crew and buy a TV ad. We’re seeing those put videos in. Over 1 million SMBs have posted videos and done really small ad buys around them. And that’s pretty cool because I don’t think there are probably 1 million advertisers who have bought TV ads in that same period of time.”

Asked about the potential for studio and professionally-driven video content, Zuckerberg said, “Right now, a lot of what people are sharing are their social videos and content. There a lot of public figures who have pages often with millions or tens of millions of followers producing unique and really high-quality content that they’re pushing out to all their fans on the network today. So, yeah, we’ll continue looking at ways to grow that and it’s – the product experience that we have right now is growing quite well so we feel good about it.”

Asked about video ad pricing, CFO David Wehner said, ” video is effectively winning in the auction if it’s higher priced. So if somebody’s willing to pay more for a video, it’s going to get served before another type of format ad. But there’s not really a price differential you’re paying for a video, it’s just what are you willing to pay into the system. So there’s not differential pricing by product, it’s just what are you willing to bid for the format that you want to show to the people that you want to show it to and that’s how the system works.”

Seeking Alpha has the full Q&A transcript here.

Image via Facebook

April 23, 2015
Zuck Discusses Facebook Search On Earnings Call

Facebook reported its Q1 earnings on Wednesday, and while it wasn’t talked about a great deal, the subject of Facebook’s efforts in search did come up during the ensuing conference call.

In his prepared remarks, CEO Mark Zuckerberg mentioned that Facebook is now seeing over a billion mobile searchers per day.

The mobile search number is noteworthy for a couple of reasons. For one, Facebook only updated is mobile search functionality to reflect its efforts in desktop search in Q4. The company announced in December that it was giving users the ability to surface posts based on keywords in search, and that this would be available for desktop as well as iOS and Android.

The second reason the amount of searches happening on mobile is significant is that this is a largely untapped opportunity for Facebook to increase its ad revenue in the long term. The more searches that happen on Facebook, the bigger opportunity this will be for the company and its advertisers.

Zuckerberg also mentioned search as one of three ways it’s “continuing to build a new generation of Internet services that are more useful, intuitive, and immersive (with the other two ways being artificial intelligence and virtual reality platform Oculus). He said Facebook will have more to share about all of these over the coming months. That’s pretty much all he had to say about search until the audience Q&A portion of the call.

Asked more about Facebook’s search efforts during the Q&A, Zuck said (via SeekingAlpha’s transcript of the call):

So we’re pretty early in this whole thing and there’s so much unique content that people share in Facebook that I think that that is the clear, unique opportunity to go for first, right? I mean there’s – if you think about the overall web, there’s a lot of public content that’s out there that any web search engine can go index and provide. But a lot of what we can get at are recommendations on products and travel and restaurants and things that your friends have shared, they haven’t shared publicly, and knowing different correlations, or interesting things about what your friends are interested in, and that’s the type of stuff, those are questions that we can answer that no one else can answer, and that’s probably going to be what we continue to focus on doing first. And I think what you’re seeing is that as we enable more use cases and as we just get a lot of the basics right around performance and bringing the mobile features into parity and beyond what we’ve been able to do on desktop, the volume is growing quickly.

I think on a recent earnings call we just announced that we passed 1 billion searches total so now being more than 1 billion on mobile shows some progress that I’m pretty proud of for the search team.

Personalized search is no doubt an area where Facebook should be able to compete with other services. Yahoo is working on something to that effect, and apparently thinking it can make a big impact with ages-old Yahoo Mail messages. I think Facebook’s ridiculous amount of personal data has a lot more potential to make such an impact. Yahoo has been talking a lot about the value distribution partnerships. It may want to look at Facebook for some opportunities.

One analyst asked Facebook if it Facebook expects to leverage its 2 million advertiser relationships against third-party search queries: “For example, when a user searches on, say, Yahoo! or maybe some Apple device, Facebook might tap in to advertisers to provide relevant sponsored results.”

COO Sheryl Sandberg simply stated that the company has no plans to work with marketers in such a way.

On the company’s previous earnings call, Zuckerberg noted that its recent search changes at resulted in indexing a trillion posts. And that was a quarter ago.

You can read more about what Zuckerberg has said about search in the past here.

Images via Facebook

April 23, 2015
936 Million Users Get on Facebook at Least Once a Day

Facebook just reported its first quarter earnings, and the company says its daily active users are approaching a billion.

According to Facebook, 936 million users check the site at least once every day – 798 million do so on mobile. If you want to know just how much Facebook is shifting to a mobile platform, that figure is a 31% year-over-year increase.

Facebook’s monthly active users count grew to 1.44 billion, a 13% year-over-year increase.

Of course, Facebook (like any social network), battles fake and duplicate users – so the count isn’t 100% accurate. But in terms of actual accounts logging on every day, Facebook is approaching a billion.

As far as the financials go, Facebook reported first quarter 2015 revenues of $3.54 billion, a 42% year-over-year increase.

“Revenue from advertising was $3.32 billion, a 46% increase from the same quarter last year. Excluding the impact of year-over-year changes in foreign exchange rates, revenue from advertising would have increased by 55%. Mobile advertising revenue represented approximately 73% of advertising revenue for the first quarter of 2015, up from approximately 59% of advertising revenue in the first quarter of 2014. Payments and other fees revenue was $226 million, a 5% decrease from the same quarter last year,” says Facebook.

Facebook shares fell slightly on the report, as it’s the first time the company has come in light on revenue, according to CNBC. Analysts predicted revenues of $3.56 billion.

Facebook did post earnings of $0.42 per share, topping the analysts’ guess of $0.40.

“This was a strong start to the year,” said Mark Zuckerberg, Facebook founder and CEO. “We continue to focus on serving our community and connecting the world.”

April 22, 2015
Yahoo Sheds Light On Search Performance, Future

Yahoo reported is Q1 financial results on Tuesday with revenues of $1.04 billion, down from $1.08 billion from the same period last year. The company missed on the bottom line and on net revenue, but the search business has clearly received a major injection of new life thanks to the company’s partnership with Mozilla.

The company reported an increase in search volume in Q1, with searches reaching a five-year high, citing the partnership as “key to this volume increase.”

Gross search revenue was $956 million, up 20% year-over-year, while GAAP search revenue was $532 million, also up 20%. The company said search revenue from the Mozilla traffic is being recognized on a gross basis as a result of the terms of the agreement, and increased GAAP revenue and as well as TAC. Search revenue ex-TAC was $432 million, down 3% year-over-year.

Paid Clicks increased 21% year-over-year, and price-per-click increased 3%.

CEO Marissa Mayer said, “Yahoo is amidst a multi-year transformation to return an iconic company to greatness. This quarter, we saw encouraging revenue growth of 8%, with display revenue growing a modest 2% and search growing 20% on a GAAP basis. Our mobile GAAP revenue reached $234 million in Q1, growing 61% year-over-year. We anticipated that we would grow GAAP revenue ahead of revenue ex-TAC and EBITDA, and that’s precisely what we saw this quarter. For the next phase of the transformation, we will focus on accelerating our GAAP revenue growth while managing our margins and costs.”

On the company’s earnings conference call, Mayer said (via SeekingAlpha’s transcript), “Mozilla is not only a high-quality deal for us, it is a profitable deal for us. For volume and long-term health of the partnership, introducing Mozilla users to and retaining them on Yahoo! Search is key, and we surpassed all expectations for new users and retention. We knew this was a landmark deal for both companies. From today’s vantage point, we would enter the partnership even more readily.”

Yahoo has been aggressively trying to get people using Firefox. Not only has the company been displaying a download link on its home page and the home pages of some of its other popular web properties, it is even now sending Yahoo Mail users emails suggesting that they download it.

That’s a particularly interesting strategy considering that they recommend doing so for safety reasons, and mention nothing whatsoever about search or or their partnership with Mozilla.

Earlier this week, Yahoo filed a regulatory document with the SEC outlining recently announced changes to its long-standing search agreement with Microsoft. It includes a termination clause, which would allow either company to bail on the deal after October 1.

Mayer said this about the amended partnership in her prepared remarks on the conference call:

The amended agreement has a five-year remaining term and is distinctly similar to the prior arrangement, except that it reduces our exclusivity commitments on PC to 51%, addresses the traffic acquisition cost we pay Microsoft on a gross basis rather than a net basis, and lets Yahoo! call on Microsoft for search only, ads only, or both together, paying a fixed cost rather than a revenue share for items that we discard without display.

I’d like to thank Satya and his team for the very constructive time and attention they dedicated to designing our go-forward partnership. We were very pleased with the renewed relationship, which improves the search experience for users, creates value for advertisers, and establishes ongoing stability for partners. We anticipate it will take several quarters to operationalize the new amendment…

She also mentioned how Yahoo is extending its search capabilities to any app developer as part of the mobile developer suite it launched at a recent developer conference. She said that in the first five weeks after the event, Yahoo Search in Apps has been launched in partner apps that have reached over 60 million users. She said the company will continue to invest in the developer ecosystem to improve quality and monetization of partner apps.

Naturally, Mayer was asked several questions about search during the Q&A portion of the call. On the company’s approach, she said they’re particularly interested in mobile and evolving context. They’re also looking harder at involving personal information like email, which the company sees as a place where it can innovate in search.

Regarding that slight loss on search ex-TAC, she said this wasn’t due to the profitable Mozilla partnership, but more attributable “acute things” the company saw in Q1, such as “the search revenue guarantee being wrapped”.

Also regarding the Mozilla partnership, Mayer noted that it’s only in effect in the U.S. and that there are “some international opportunities in the deal but none of those are in place at the moment.”

Somehow, a potential Safari deal was never explicitly mentioned during the call despite Mayer’s enthusiasm about such a prospect on the company’s previous earnings call. She did, however, talk about potential distribution deals more generally, emphasizing the importance of maintaining volume, which she said is an indication of how Yahoo users value search, and that it’s “actually meeting their needs.”

Partnerships are a way to maintain that volume, she noted, and the exclusivity piece of desktop search being reduced in the Microsoft deal gives Yahoo the ability to “innovate more” and the potential to “work with other partners”.

“We could introduce our own features but it also creates a very competitive atmosphere where we all work each day to earn that traffic and the percentage that gets directed to various partners, including Bing, and so overall we really like that dynamic,” she said.

You can find the full earnings report here.

Image via Wikimedia Commons

April 22, 2015

Here’s What The Netflix Original Content Schedule Looks Like Right Now

Netflix just released its Q1 earnings, and announced that it has achieved some new milestones. For one, it surpassed 40 million members in the U.S., as well as 20 million internationally, and 60 million total. Member engagement is at an all-time high, the company said, with members streaming 10 billion hours in Q1.

Here’s a look at the financials:

In Q1 alone, Netflix added 4.9 million members globally, which is significantly higher than the 4.1 million it projected. The company says retention also continued to improve. That’s no surprise, considering that Netflix has been rated the highest for the online video streaming category in terms of brand loyalty.

Netflix will be focusing more of its marketing budget on international growth in Q2, so expect international numbers to look even more impressive on the next report. Of course international expansion continues as well. The service just launched in Australia and New Zealand less than a month ago, and Netflix expects to have its worldwide roll-out complete by 2017.

A Japan launch is slated for later this year in addition to other markets.The company expects net adds to increase by 70% in Q2 compared to last year.

Here’s what CEO Reed Hastings and CFO David Wells told shareholders about its content in a letter:

Our original content strategy is playing out as we hoped, driving lots of viewing in an economic way for Netflix while bolstering the positive perception of our brand and service around the world.

House of Cards, in its third season, had its biggest launch yet in terms of viewers. Unbreakable Kimmy Schmidt, Tina Fey’s return to television, has been a hit, winning Rotten Tomatoes scores of 90%+ from both critics and viewers and our drama thriller, Bloodline starring Kyle Chandler, Ben Mendelsohn and Sissy Spacek, is performing on par with the first seasons of our other big drama shows. During the quarter, we announced new seasons for all three shows, as well as three new Netflix original films, PeeWee’s Big Holiday from Judd Apatow and Paul Reubens, Jadotville, from Irish director Richie Smyth and starring Jamie Dornan, and Beasts of No Nation from director Cary Fukunaga and starring Idris Elba. Beasts will premiere on Netflix later this year.

We are delighted by the fan excitement and critical response around last Friday’s launch of Marvel’s Daredevil, the first of four series and a mini-series from our deal with Marvel Entertainment. The current quarter will also see the debut of Grace and Frankie starring legendary comedians Jane Fonda and Lily Tomlin, Sense8, an unbelievably cinematic and entertaining global dramatic thriller from the Wachowski siblings, and the third season of our groundbreaking Orange is The New Black.

Netflix also shared an updated look at its slate of original content for the foreseeable future. Here’s what that looks like:

April 17 Chris D’Elia: Incorrigible Stand-Up Comedy Special Global Original

April 26 Chef’s Table Docu-Series Global Original

May 8 Grace and Frankie Series Global Original

May 21 Between (All territories except Canada) Series Global Original

May 22 Jen Kirkman: I’m Gonna Die Alone (And I Feel Fine) Stand-Up Comedy Special Global Original

May 22 The Other One: The Long, Strange Trip of Bob Weir Documentary Global Original

June 5 Sense8 — Available in Ultra HD 4K Series Global Original

June 12 Orange is the New Black – Season 3 Series Global Original

June 26 What Happened, Miss Simone? Documentary Global Original

Q3 2015

July 10 Chris Tucker Live Stand-Up Comedy Series Global Original

July 17 Wet Hot American Summer Series Global Original

August 28 Crouching Tiger: The Green Destiny — Available in Ultra HD 4K Film Global Original

Coming Up in 2015 & 2016

— Beasts of No Nation Film Global Original

2015 BoJack Horseman – Season 2 Series Global Original

2016 Bottersnikes & Grumbles (All territories except UK and Australia) Kids Global Original

2016 Care Bears and Cousins (All territories except France and Germany) Kids Global Original

2015 Chelsea Handler Docu-Comedy Specials Comedy Doc Special Global Original

2016 Chelsea Handler Talk Show — Global Original

2015 Club de Cuervos Series Global Original

2016 The Crown Series Global Original

2016 Danger Mouse (All territories except Germany, France, UK and Ireland) Kids Global Original

2015 Dinotrux Kids Global Original

2015 Dragons Kids Global Original

2015 Ever After High Kids Global Original

2015 F is for Family Series Global Original

2015 Fargo – Season 2 (France, Germany, Austria, Switzerland & Benelux only) Series First Run Non-US

2016 Flaked Series Global Original

2015 From Dusk Till Dawn – Season 2 (All non-US territories) Series First Run Non-US

2015 Hemlock Grove – Season 3 Series Global Original

2016 Jadotville Film Global Original

2016 Justin Time: The New Adventures Kids Global Original

2015 Knights of Sidonia – Season 2 Anime Series Global Original

2016 KONG – KING OF THE APES Kids Global Original

— Lemony Snicket’s A Series of Unfortunate Events Series Global Original

2015 Longmire – Season 4 (US & Canada only) Series Global Original

2016 Love Series Global Original

2016 The Magic School Bus Kids Global Original

— Marco Polo – Season 2 — Available in Ultra HD 4K Series Global Original

2015 Marseille Series Global Original

2015/2016 Marvel’s A.K.A. Jessica Jones — Available in Ultra HD 4K Series Global Original

2016 Montauk Kids Global Original

2015 Narcos — Available in Ultra HD 4K Series Global Original

2016 The OA Series Global Original

— Peaky Blinders – Season 3 (US only) Series Global Original

2015 Penny Dreadful – Season 2 (France, Germany, Austria, Switzerland & Benelux only) Series First Run Non-US

2015 Pompidou Series Global Original

2015 Popples (All territories except France) Kids Global Original

2015 Some Assembly Required (All territories except Canada) Kids Global Original

2016 Special Correspondents Series Global Original

2015 Super 4 Kids Global Original

2015 Trailer Park Boys – Season 9 Series Global Original

2015 What Happened, Miss Simone? Documentary Global Original

2015 With Bob and David Series Global Original

2016 Winx Club WOW: World of Winx Kids Global Original

Hastings and Wells also noted that they plan to roll out a new TV user interface in the second half of this year, which will see video playback “forward into the browse experience.”

They’re also working on ways to better promote Netflix originals to subscribers using data to identify those that would most likely be interested in specific titles.

Netflix is also working on adding more subtitles and UI languages for content.

The letter to shareholders mentioned HBO’s new HBO Now service, saying they think both services will continue to be successful, and that they’re not substitutes for one another. On another competitive note, the company says it views Internet MVPD offerings like the rumored Apple offering, Sony’s Playstation Vue and Dish’s Sling TV as more competitive to the current pay TV bundle than to Netflix. It adds that piracy remains a “considerable long-term threat, mostly outside the U.S.”

In case you’re wondering about the DVD service, it still has over 5.5 million members, which the company considers a “core user base” that continues to rely on it for new release movies and TV shows, as well as its broad selection of titles. On the last earnings report, it had 5.8 million DVD subscribers.

Image via Twitter

April 15, 2015

Yelp Is Beefing Up Its Sales Staff

Yelp released its earnings report for the fourth quarter and full year 2014 on Thursday, and as previously reported, the company grew its local advertising accounts by 48% over the course of 2014.

Yelp execs discussed the progress of its ad offerings quite a bit during a conference call. The company intends to increase its sales headcount by 40% this year. This will mostly be in the U.S. despite the company’s international growth efforts (it launched in five new countries in 2014).

The news is sure to draw some eye rolls from those accusing Yelp salespeople of extorting them by holding positive reviews hostage (allegations that have never been proven and that Yelp has always successfully combated on a legal basis). Yelp announced last month that the FTC closed an investigation related to this without taking any action against the company.

“Many of those folks [salespeople] tend to come to us either straight out of college or within a few years thereafter, but we take all comers and there’s all different kinds of folks,” said COO and Director Geoff Donaker on the conference call (via Seeking Alpha’s transcript). “But it is a sales training program and so most of that headcount is folks who are reaching out to local businesses of different stripes. Of course, within that number, there is some international and there is some sort of specialty sales and mid-market franchise and national accounts, but the majority of it is kind of traditional local sales headcount here in the U.S.”

Donaker noted that while Yelp has traditionally focused on selling impressions-based packages, it made its packaged CPC product widely available in September. He said they’re happy with the “fast uptake” of that, and that CPC advertisers accounted for 32% of local revenue during the fourth quarter (up from 23% in Q3).

“The next logical step in our closing-the-loop efforts is to connect advertising spend all the way through to customer leads and spending,” said Donaker. “We are now tracking these ad-driven leads and associated revenue estimates for all advertisers, and we’ll be making this data available in our business owner tools in the coming quarters.”

He mentioned that local CPC customers experience an average ROI of over 500% on their Yelp ad spend.

Yelp has also seen increased growth from those utilizing its self-serve ads. More and more people are starting their advertising process there, and then electing to call up Yelp salespeople, Donaker said.

“Taken together, we believe that most business owners will continue to prefer consulting with our sales people, though many of these conversations may increasingly be what we think of as assisted self-serve,” he said.

In response to a question from an analyst, Donaker said Yelp has “an awful lot” of unused or unsold ad inventory.

“Also, we’re seeing that in some more competitive categories or geo categories, if you will,” he said. “We do see that prices quickly rise within packaged CPC because that is an auction-based dynamic where folks effectively are bringing in an amount of money that they’re going to spend on CPC advertising and then leaving it to the bidding to determine what the prices will ultimately be for that inventory. And so you can imagine tight categories like movers in San Francisco, those prices are able to move up pretty quickly. So I think there is headroom in both price as well as inventory generally.”

One analyst noted that core search players are recommending bids at about 2x the levels of Yelp.

“We noticed the same thing as we’ve done a little bit of benchmarking, and it obviously gives us comfort with both the ROI that we’re giving to advertisers today as well as the headroom in those categories for pricing,” Donaker responded. “And so the simple answer is just acquisition, and that’s why we continue to be focused on bringing in as many CPC advertisers as we can because over time, more competition should mean prices will rise as well as, hopefully, more happy customers.

At one point, CEO Jeremy Stoppelman noted that more than half of Yelp’s advertisers are taking advantage of video offerings.

Image via Yelp

February 6, 2015
Twitter Talks Google Deal, Says User Growth Trend Already Turned Around This Year

Twitter reported its Q4 and fiscal year 2014 financial results on Thursday, with 97% year-over-year revenue growth for the quarter at $479 million. Ad revenue per thousand timeline views reached $2.37 in the quarter, which was up 60% year-over-year. The company managed to impress with its business, but continued to disappoint in the user growth department, which is an area the company has been heavily criticized over since going public.

Average Monthly Active Users (MAUs) were 288 million for the fourth quarter, which was an increase of 20% year-over-year. The company noted that this reflects a loss of about 4 million net Monthly Active Users in the quarter due to changes in third party integrations (specifically iOS 8). Users grew at a rate of just 1.4 for the quarter compared to 4.8% the prior quarter. Average Mobile MAUs were 80% of total MAUs. Timeline views reached 182 billion for the quarter (up 23% year-over-year). Twitter sees 6,000 tweets per minute every day, according to the company.

All in all, Twitter added 4 million users during the quarter and 47 million throughout 2014. CEO Dick Costolo said on the earnings call that user numbers the company saw in January of this year indicate its MAU trend has already been turned around. He indicated that new Twitter features like native video, group messaging, and Instant Timeline (which populates the timelines of new users) should contribute to an upward trend. He also mentioned the company’s recent acquisition of ZipDial, which he said it will use to bring more content (like key moments and commentary from the Cricket World Cup) to a much larger audience on Twitter.

Twitter is also doing a lot to build its developer ecosystem, as Costolo also brought up. This should lead to new apps and services that can contribute to user growth. Last fall, the company unveiled its new Fabric developer kits and Digits sign-in. This year, the company has already embarked on a developer tour called Flock, which will see the company helping developers build apps.

Costolo said during the Q&A portion of Twitter’s earnings conference call that he could confirm that Twitter has entered into an agreement with Google, but declined to elaborate on any more details about it. In the past, the two companies have worked together to show tweets in real time in Google’s search results. From the sound of it this is what’s going to happen again, though it remains to be seen if it will function the same way. Either way, it’s going to get tweets in front of people more often, and that can’t hurt user growth.

During the call, Costolo was asked why a Google deal didn’t make sense any longer when the two companies grew apart a few years ago, and why it makes more sense now. His answer (via Seeking Alpha) was as follows:

We’ve obviously had a relationship with Google over the course of the years with all the bunch of the executives here and a bunch of the executives there obviously know each other quite well.

I would say that the way we think about the Google deal now without again — without going into any of the details distinct from the kind of relationship we had in the past is that we’ve got the opportunity now to drive a lot of attention to an aggregate eye balls if you will to these logged out experiences, topics and events that we plan on delivering on the front page of Twitter. And that’s one of the reasons this makes a lot more sense for us now.

He also made clear that we won’t see a launch from the deal for several months.

As one analyst mentioned, the Google deal should have an impact on Twitter’s revenue in terms of licensing, but the company declined to discuss that for the time being.

Regarding the iOS 8 changes that impacted Twitter’s user base, CFO Anthony Noto said:

So we said we lost four million monthly active users due to the iOS8 integration. One million of those monthly active users were Twitter owned and operated monthly active users and three million were on Safari, what we call Auto point MAU’s and we lost those.

We don’t expect to get the three million Autopoint MAU’s in Safari back and that’s a non-Twitter owned and operated Autopoint MAU. The one million that number was actually higher at a different point in the quarter when we were able to bring it back down to just one.

Costolo added:

We obviously have a great relationship with Apple. I’ve talked about that at length over the course of the last two years. On the second part of what Anthony talked about there, there was unforeseen bug in the release of iOS8 as it relates to the specific Twitter integration into iOS that’s why it was particular to us. Once we understood the issue, we move just quickly as we could on multiple fronts to minimize its impact, but it wasn’t — it wasn’t a one size fits off fix, which is why you’ve seen some of the complexity that we talked about here in brining those users back. The problem was a complex and affected different users differently.

The Wall Street Journal reports that while hitting a record low, Twitter’s user growth fell below Facebook’s for the first time. According to Re/code, Twitter has revoked access to user growth numbers from its employees.

Image via Twitter

February 6, 2015

Yelp Grew Local Advertising Accounts 48% Over 2014

Yelp just released its earnings report for the fourth quarter and full year 2014. Net revenue for the quarter grew 56% year-over-year as the company grew local advertising accounts by 48% to approximately 84,000.

To be clear, Yelp considers local advertising accounts to be all local business accounts from which it recognizes local revenue in a given three-month period.

Cumulative reviews grew 35% to about 71 million while average monthly unique visitors grew 13% to 135 million. Average monthly mobile uniques grew 37% to 72 million. Active local business accounts grew 39% year over year to 93,700.

Last week, Yelp dropped the hammer on another round of businesses it says were violating its guidelines. It dished out consumer alerts to 85 business pages warning users about practices they claim to have discovered.

Here’s Yelp’s earnings release in its entirety:

SAN FRANCISCO, Feb. 5, 2015 /PRNewswire/ — Yelp Inc. (NYSE: YELP), the company that connects consumers with great local businesses, today announced financial results for the fourth quarter and full year ended December 31, 2014.

Net revenue was $109.9 million in the fourth quarter of 2014, reflecting 56% growth over the fourth quarter of 2013
Cash flow from operations was $18.9 million in the fourth quarter. Adjusted EBITDA for the fourth quarter of 2014 was $25.1 million, reflecting a nearly 150% increase over the fourth quarter of 2013
Cumulative reviews grew 35% year over year to approximately 71 million
Average monthly unique visitors grew 13% year over year to approximately 135 million1 and average monthly mobile unique visitors grew 37% year over year to approximately 72 million2
Active local business accounts grew 39% year over year to approximately 93,700
Local advertising accounts grew 48% year over year to approximately 84,0003

Net income in the fourth quarter of 2014 was $32.7 million, or $0.42 per share, compared to a net loss of$(2.1) million, or $(0.03) per share, in the fourth quarter of 2013. Net income for the fourth quarter of 2014 included an income tax benefit of $26.2 million, or $0.34 per share, due to the release of a deferred tax asset valuation allowance.

Net revenue for the full year ended December 31, 2014 was $377.5 million, an increase of 62% compared to $233.0 million in the prior year. Net income for the full year ended December 31, 2014 was $36.5 million, or $0.48 per share, compared to a net loss of $(10.1) million, or $(0.15) per share, in 2013. Adjusted EBITDA for the full year 2014 was $70.9 million compared to $29.4 million for the prior year.

Non-GAAP net income, which consists of net income excluding stock-based compensation, amortization and valuation allowance release, was $18.9 million for the fourth quarter, or $0.24 per share, compared to $7.3 million, or $0.11 per share, in the fourth quarter of 2013. Non-GAAP net income for the full year endedDecember 31, 2014 was $53.0 million, or $0.69 per share, compared to $18.3 million, or $0.28 per share, for the comparable period in 2013.

“We are extremely pleased with our accomplishments in 2014, having made great progress on the key initiatives we set at the beginning of the year,” said Jeremy Stoppelman, Yelp’s chief executive officer. “We continued to support the Yelp community with numerous improvements to the consumer experience, expanded our geographic footprint and found new ways to communicate the valuable leads we deliver to local businesses. As we move into 2015, we will look to drive mobile engagement by making Yelp even more useful for everyday consumer needs, increase awareness of Yelp among consumers and deliver and measure ROI for our advertisers. We see a vast market opportunity ahead of us and look forward to capturing more advertising spend as it shifts online.”

“This past year marked an important milestone for Yelp,” added Rob Krolik, Yelp’s chief financial officer. “We achieved full year profitability for the first time while growing revenue in excess of 60% in 2014 and generating operating cash flow of approximately $58 million. Given the leverage we’ve seen in the business and the large opportunity ahead of us, we believe we can achieve adjusted EBITDA margins of 35-40% over the long term.”

Business Highlights

Closing the loop with businesses: Yelp continued to increase the value it delivers to business owners with the launch of the Yelp for Business Owners app to help business owners interact with Yelp consumers and view their business metrics on-the-go. In the fourth quarter, consumers made approximately 350,000 transactions through Yelp Platform. Now, Yelp has more than 60,000 businesses integrated into Yelp Platform through its 12 partners, enabling even more transactions.
International expansion: Yelp launched in five new countries in 2014, expanding its global footprint to 29 countries around the world. Consumers are now able to use the mobile translation feature to read Yelp content in 16 different languages. In the fourth quarter, Yelp acquired review sites Restaurant-Kritik and Cityvox to deepen and broaden its content in Europe.
Community engagement: Consumer and community engagement continued to grow in 2014 as new features such as video uploads, Yelp Reservations and Message the Business were added to enhance the consumer experience. In the fourth quarter, mobile app contributions rose to approximately 58% of reviews and photos posted.

Business Outlook

As of today, Yelp is providing its outlook for the first quarter and full year of 2015.

For the first quarter of 2015, net revenue is expected to be in the range of $114 million to $116 million, representing growth of approximately 51% compared to the first quarter of 2014. Adjusted EBITDA is expected to be in the range of $19 million to $21 million. Stock-based compensation is expected to be in the range of $12 million to $13 million, and depreciation and amortization is expected to be approximately 4-5% of revenue.
For the full year of 2015, net revenue is expected to be in the range of $538 million to $543 million, representing growth of approximately 43% compared to full year 2014. Adjusted EBITDA is expected to be in the range of $100 million to $103 million. Stock-based compensation is expected to be in the range of $58 million to $60 million, and depreciation and amortization is expected to be approximately 4-5% of revenue.

Quarterly Conference Call

To access the call, please dial 1 (800) 708-4539, or outside the U.S. 1 (847) 619-6396, with Passcode 38800596, at least five minutes prior to the 1:30 p.m. PT start time. A live webcast of the call will also be available at http://www.yelp-ir.com under the Events & Presentations menu. An audio replay will be available between 4:00 p.m. PT February 05, 2015 and 11:59 p.m. PT February 12, 2015 by calling 1 (888) 843-7419 or 1 (630) 652-3042, with Passcode 38800596. The replay will also be available on the Company’s website at http://www.yelp-ir.com.

About Yelp

Yelp Inc. (http://www.yelp.com) connects people with great local businesses. Yelp was founded in San Francisco in July 2004. Since then, Yelp communities have taken root in major metros across 29 countries. Yelp had a monthly average of approximately 135 million unique visitors during the fourth quarter of 20141. By the end of the same quarter, Yelpers had written approximately 71 million local reviews, making Yelp the leading local guide for real word-of-mouth on everything from boutiques and mechanics to restaurants and dentists. Approximately 72 million unique visitors visited Yelp via their mobile device on a monthly average basis during the fourth quarter of 20142.

1 Source: “Users” as measured by Google Analytics

2 Average monthly mobile unique visitors based on the number of unique visitors accessing Yelp via mobile web and unique devices accessing the app on a monthly average basis over a given three-month period.

3 Local advertising accounts comprise all local business accounts from which we recognize Local revenue in a given three-month period.

Non-GAAP Financial Measures

This press release includes information relating to Adjusted EBITDA and Non-GAAP net income, each of which the Securities and Exchange Commission has defined as a “non-GAAP financial measures.” Adjusted EBITDA and Non-GAAP net income have been included in this press release because they are key measures used by the Company’s management and board of directors to understand and evaluate core operating performance and trends, to prepare and approve its annual budget and to develop short- and long-term operational plans. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles in the United States (“GAAP”).

Adjusted EBITDA and Non-GAAP net income have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of the Company’s results as reported under GAAP. Some of these limitations are:

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA and Non-GAAP net income do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
adjusted EBITDA does not reflect changes in, or cash requirements for, the Company’s working capital needs;
adjusted EBITDA and Non-GAAP net income do not consider the potentially dilutive impact of equity-based compensation;
adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
adjusted EBITDA does not take into account restructuring and integration costs associated with our acquisition of Qype;
and other companies, including those in the Company’s industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA and Non-GAAP net income alongside other financial performance measures, including various cash flow metrics, net income (loss) and the Company’s other GAAP results. Additionally, the Company has not reconciled its adjusted EBITDA outlook for the first quarter and full year 2015 to its net income (loss) outlook because it does not provide an outlook for other income (expense) and provision for income taxes, which are reconciling items between net income (loss) and adjusted EBITDA. As items that impact net income (loss) are out of the Company’s control and cannot be reasonably predicted, the Company is unable to provide such an outlook. Accordingly, reconciliation to net income (loss) outlook for the first quarter and full year 2015 is not available without unreasonable effort. For a reconciliation of historical non-GAAP financial measures to the nearest comparable GAAP measures, see the Non-GAAP reconciliations included below in this press release.

Forward-Looking Statements

This press release contains forward-looking statements relating to, among other things, the future performance of Yelp and its consolidated subsidiaries that are based on the Company’s current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding expected financial results for the first quarter and full year 2015, the Company’s potential adjusted EBITDA margins over the long term, the future growth in Company revenue and continued investing by the Company in its future growth, the Company’s ability to drive mobile engagement, increase awareness of Yelp among consumers, deliver and measure ROI for our advertisers, expand geographically and build Yelp communities internationally and expand its markets and presence in existing markets, the Company’s ability to capture the large local opportunity and more advertising spend and develop new ways to close the loop with local businesses. The Company’s actual results could differ materially from those predicted or implied and reported results should not be considered as an indication of future performance. Factors that could cause or contribute to such differences include, but are not limited to: the Company’s short operating history in an evolving industry; the Company’s ability to generate sufficient revenue to maintain profitability, particularly in light of its significant ongoing sales and marketing expenses; the Company’s ability to successfully manage acquisitions of new businesses, solutions or technologies, including Qype and SeatMe, and to integrate those businesses, solutions or technologies; the Company’s reliance on traffic to its website from search engines like Google and Bing; the Company’s ability to generate and maintain sufficient high quality content from its users; maintaining a strong brand and managing negative publicity that may arise; maintaining and expanding the Company’s base of advertisers; changes in political, business and economic conditions, including any European or general economic downturn or crisis and any conditions that affect ecommerce growth; fluctuations in foreign currency exchange rates; the Company’s ability to deal with the increasingly competitive local search environment; the Company’s need and ability to manage other regulatory, tax and litigation risks as its services are offered in more jurisdictions and applicable laws become more restrictive; the competitive and regulatory environment while the Company continues to expand geographically and introduce new products and as new laws and regulations related to Internet companies come into effect; the Company’s ability to timely upgrade and develop its systems, infrastructure and customer service capabilities. The forward-looking statements in this release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof.

More information about factors that could affect the Company’s operating results is included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s most recent Quarterly Report on Form 10-Q at http://www.yelp-ir.com or the SEC’s website at www.sec.gov. Undue reliance should not be placed on the forward-looking statements in this release, which are based on information available to the Company on the date hereof. Yelp assumes no obligation to update such statements. The results we report in our Annual Report on Form 10-K for the three months and year ended December 31, 2014 could differ from the preliminary results we have announced in this press release.

Investor Relations Contact Information
Yelp Investor Relations
Wendy Lim
(415) 568-3240
ir@yelp.com

Yelp Inc
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

	December 31,	December 31,
	2014	2013
Assets
Current assets:
Cash and cash equivalents	$ 247,312	$ 389,764
Short-term marketable securities	118,498	–
Accounts receivable, net	35,593	21,317
Prepaid expenses and other current assets	19,355	5,752
Total current assets	420,758	416,833

Long-term marketable securities	38,612	–
Property, equipment and software, net	62,761	30,666
Goodwill	67,307	59,690
Intangibles, net	5,786	5,235
Restricted cash	17,943	3,247
Other assets	16,483	306
Total assets	$ 629,650	$ 515,977

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$ 1,398	$ 3,364
Accrued liabilities	29,581	19,004
Deferred revenue	2,994	2,621
Total current liabilities	33,973	24,989
Long-term liabilities	7,527	4,505
Total liabilities	41,500	29,494

Commitments and contingencies

Stockholders’ equity
Common stock	–	–
Additional paid-in capital	627,742	553,753
Accumulated other comprehensive income	(5,609)	3,186
Accumulated deficit	(33,983)	(70,456)
Total stockholders’ equity	588,150	486,483
Total liabilities and stockholders’ equity	$ 629,650	$ 515,977

Yelp Inc
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
	Three Months Ended		Twelve Months Ended
	December 31,		December 31,
	2014	2013	2014	2013

Net revenue	$ 109,887	$ 70,651	$ 377,536	$ 232,988

Cost and expenses
Cost of revenue (1)	7,286	4,926	24,382	16,561
Sales and marketing (1)	53,580	38,847	201,050	131,970
Product development (1)	19,076	11,802	65,181	38,243
General and administrative (1)	16,662	13,460	58,274	42,907
Depreciation and amortization	5,291	3,524	17,590	11,455
Restructuring and integration (1)	–	–	–	675

Total cost and expenses	101,895	72,559	366,477	241,811
Income (Loss) from operations	7,992	(1,908)	11,059	(8,823)
Other income (expense), net	38	(109)	221	(407)
Income (Loss) before provision for income taxes	8,030	(2,017)	11,280	(9,230)
Benefit (Provision) for income taxes	24,698	(52)	25,193	(838)
Net income (loss) attributable to common stockholders	$ 32,728	$ (2,069)	$ 36,473	$ (10,068)

Net income (loss) per share attributable to common stockholders:
Basic	$ 0.45	$ (0.03)	$ 0.51	$ (0.15)
Diluted	$ 0.42	$ (0.03)	$ 0.48	$ (0.15)

Weighted-average shares used to compute net income (loss) per share attributable to common stockholders:
Basic	72,645	68,847	71,936	65,665
Diluted	77,211	68,847	76,712	65,665



(1) Includes stock-based compensation expense as follows:
	Three Months Ended		Twelve Months Ended
	December 31,		December 31,
	2014	2013	2014	2013
Cost of revenue	$ 207	$ 140	$ 729	$ 421
Sales and marketing	3,995	3,201	15,003	10,131
Research and development	4,551	2,705	14,884	6,270
General and administrative	3,063	2,743	11,657	9,300
Restructuring and integration	–	–	–	555
Total stock-based compensation	$ 11,816	$ 8,789	$ 42,273	$ 26,677

Yelp Inc
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
	Year Ended
	December 31,
	2014	2013
Operating activities
Net income (loss)	$ 36,473	$ (10,068)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	17,590	11,455
Provision for doubtful accounts and sales returns	7,238	3,304
Stock-based compensation	42,273	26,677
Release of valuation allowance	(28,197)	–
(Gain) loss on disposal of assets and website development costs	4	159
Premium amortization, net, on securities held-to-maturity	349	–
Excess tax benefit from share-based award activity	(1,834)	(353)

Changes in operating assets and liabilities:
Accounts receivable	(21,291)	(12,843)
Prepaid expenses and other assets	(4,011)	(1,572)
Accounts payable, accrued expenses and other liabilities	8,927	4,971
Deferred revenue	411	(298)
Net cash provided by (used in) operating activities	57,932	21,432

Investing activities
Acquisitions, net of cash received	(14,340)	(2,057)
Purchases of property, equipment and software	(29,054)	(16,243)
Capitalized website and software development costs	(11,349)	(4,856)
Change in restricted cash	(14,764)	3,176
Purchase of intangibles	(1,724)	–
Proceeds from sale of property and equipment	14	–
Goodwill measurement period adjustment	–	1,153
Purchases of investment securities held-to- maturity	(210,459)	–
Maturities of investment securities held-to-maturity	53,002	–
Cash used in investing activities	(228,674)	(18,827)

Financing activities
Proceeds from follow-on offering, net of offering costs	–	276,527
Proceeds from issuance of common stock from share-based awards	20,164	13,554
Proceeds from issuance of common stock for Employee Stock Purchase Plan	8,869	1,960
Excess tax benefit from share-based award activity	1,834	353
Repurchase of common stock	(1,318)	(674)

Net cash provided by financing activities	29,549	291,720

Effect of exchange rate changes on cash and cash equivalents	(1,259)	315

Net increase in cash and cash equivalents	(142,452)	294,640
Cash and cash equivalents at beginning of period	389,764	95,124
Cash and cash equivalents at end of period	247,312	$ 389,764

	Yelp Inc
	Reconciliation of GAAP to Non-GAAP Financial Measures
	(In thousands)
	(Unaudited)

		Three Months Ended		Twelve Months Ended
		December 31,		December 31,
		2014	2013	2014	2013

Adjusted EBITDA:
	Net income (loss)	$ 32,728	$ (2,069)	$ 36,473	$ (10,068)
	(Benefit) Provision for income taxes	(24,698)	52	(25,193)	838
	Other (income) expense, net	(38)	109	(221)	407
	Depreciation and amortization	5,291	3,524	17,590	11,455
	Stock-based compensation	11,816	8,789	42,273	26,122
	Restructuring and integration	–	–	–	675
	Adjusted EBITDA	$ 25,099	$ 10,405	$ 70,922	$ 29,429

GAAP net income (loss) to non-GAAP net income per share:
	GAAP net income (loss) attributable to common Shareholders	$32,728	$(2,069)	$36,473	$(10,068)
	Add back: stock-based compensation	11,816	8,789	42,273	26,122
	Add back: amortization of intangible assets	550	620	2,448	2,260
	Add back: valuation allowance release	(26,197)	–	(28,197)	–
	NON-GAAP NET INCOME	$18,897	$ 7,340	$52,997	$ 18,314

	GAAP diluted shares	77,211	68,847	76,712	65,665

NON-GAAP NET INCOME PER SHARE		$ 0.24	$ 0.11	$ 0.69	$ 0.28

Logo – http://photos.prnewswire.com/prnh/20050511/SFW134LOGO

SOURCE Yelp Inc.

February 5, 2015

Google Responds To Yahoo’s Firefox Deal On Earnings Call
Google released its Q4 and fiscal year 2014 financial results on Thursday with full year revenue up 19% year-over-year at $66 billion and revenue of $18.1 billion for the quarter, which was a 15% year-over-year increase.

During the company’s conference call, CFO and Senior Vice President Patrick Pichette was asked about the impact of Yahoo’s deal with Mozilla to replace Google as the default search experience in the Firefox browser. here’s what he had to say (via Seeking Alpha’s transcript):

You’ve all heard the announcements about Mozilla. And so when we don’t comment on the details of any of our partnerships that we have, having said that, we continue to do two things that really matter. One is our users continue to actually go in, if they love Google, they will continue to find Google, whichever platform, whichever browser, and that’s really what we’ve focused on doing.

And then the second piece is the way to win this in the long-term, right? It’s very simple. You just make wonderful products. And when you make wonderful products that are magical people will find them.

And so that’s the strategy that we’re using and we just don’t comment on any of our – we’ve never commented on any of our deals, so we want comment on Mozilla either.

The subject came up again a bit later in the call, and Pichette had a little more to say:

So on the issue of partnerships, Google has a lot of partnerships, right, it’s got – it’s an anchor of our strategy, because that actually gives us distribution, distribution is good. And so we also we look for partnerships in many spaces.

Partnerships have to be win-wins, and in that sense, right, we’ll always look for those combinations. But also at the end of the day, there’s a second piece of the strategy, which is, as I said earlier, building amazing product, because if you build the amazing products then people want to distribute you product.

And so that’s why, we have a meet in the whole search team that actually do this amazing job through the knowledge graph and all of the other elements of search, and no matter what the device, no matter the location, no matter the time of day. If we give you the answer as you’re looking for and 10 clicks less than it was before and then even faster and better all the time, that’s what wins, and that’s the core of what we’re focused on, and then people will find the way to get the Google.

So, yes, partnerships matter. But at the core of it, you need partnership, because you have a phenomenal product. And that’s what we’re going to continue to build this amazing company.

Google has already been showing concern about losing Mozilla. It definitely matters. Google has been trying to get people to switch back with messages like this:

This one's for all the Google Search-loving Firefox fans out there → http://t.co/c3C0D9SC8v pic.twitter.com/ocZAOWTrvf

— Google (@google) January 21, 2015

And one on the Google homepage in the Firefox browser, which says, “Get to Google faster. Make Google your default engine.”

Yahoo also reported its earnings this week, and Mayer talked more about her company’s deal with Mozilla. She appears to be quite excited about it, and is clearly thirsty for a similar partnership with Apple to replace Google as the default experience in Safari. Whether or not that happens remains to be seen. Microsoft and Google both want that too.

Last week, Merkle | RKG released its Digital Marketing Report for Q4 2014, which looked at the impact of the Yahoo/Mozilla deal on paid search.

“We’re now able to assess the impact of the deal on Yahoo’s share of Firefox paid search traffic, which grew from 12% at the beginning of December to 30% by the end of the year,” the report said. “However, digging deeper reveals that Yahoo’s share of Firefox 34 paid clicks has been in decline ever since the first big wave of updates in the second week of December. While the initial rollout saw Yahoo’s share rise to a peak of 43% on December 10th, that figure was just 36% by December’s end.”

“This is primarily the result of users switching the default search engine of their browsers back to Google, as shown by the corresponding increase in Google’s share of Firefox 34 paid clicks throughout the month of December,” it added. “All in all, it appears the deal will move about 2% or less of total paid search traffic from Google to Yahoo. This is far less than the 10%+ of paid traffic that stands to be on the table if Safari default search were to change hands, which news outlets have reported is a possibility in 2015.”

According to that report, Bing and Yahoo outpaced Google in paid search growth, not only because of the Yahoo Firefox deal, but also rapid growth from Bing Product Ads.

Here’s Google’s full earnings release:

MOUNTAIN VIEW, Calif. – January 29, 2015 – Google Inc. (NASDAQ: GOOG, GOOGL) today announced financial results for the quarter and fiscal year ended December 31, 2014.

“Google’s full year revenue for 2014 was $66 billion, up 19% year on year,” said Patrick Pichette, CFO of Google, “and this quarter, our revenue was $18.1 billion, despite strong currency headwinds.”

Q4 Financial Summary

Google Inc. reported consolidated revenues of $18.10 billion for the quarter ended December 31, 2014, an increase of 15% compared to the fourth quarter of 2013. Google Inc. reports advertising revenues, consistent with GAAP, on a gross basis without deducting traffic acquisition costs (TAC). In the fourth quarter of 2014, TAC totaled $3.62 billion, or 22% of advertising revenues.

Operating income, operating margin, net income, and earnings per share (EPS) are reported on a GAAP and non-GAAP basis. The non-GAAP measures, as well as free cash flow, an alternative non-GAAP measure of liquidity, are described below and are reconciled to the corresponding GAAP measures at the end of this release.

GAAP operating income in the fourth quarter of 2014 was $4.40 billion, or 24% of revenues. This compares to GAAP operating income of $4.43 billion, or 28% of revenues, in the fourth quarter of 2013. Non-GAAP operating income in the fourth quarter of 2014 was $5.60 billion, or 31% of revenues. This compares to non-GAAP operating income of $5.30 billion, or 34% of revenues, in the fourth quarter of 2013.

GAAP net income (including net income (loss) from discontinued operations) in the fourth quarter of 2014 was $4.76 billion, compared to $3.38 billion in the fourth quarter of 2013. Non-GAAP net income in the fourth quarter of 2014 was $4.74 billion, compared to $4.57 billion in the fourth quarter of 2013.

GAAP EPS (including impact from net income (loss) from discontinued operations) in the fourth quarter of 2014 was $6.91 on 688 million diluted shares outstanding, compared to $4.95 in the fourth quarter of 2013 on 682 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2014 was $6.88, compared to $6.70 in the fourth quarter of 2013.

Non-GAAP operating income and non-GAAP operating margin exclude stock-based compensation (SBC) expense from continuing operations. Non-GAAP net income and non-GAAP EPS exclude SBC expense from continuing operations, net of the related tax benefits, as well as net income (loss) from discontinued operations.

In the fourth quarter of 2014, the expense related to SBC from continuing operations and the related tax benefits were $1,201 million and $255 million compared to $873 million and $184 million in the fourth quarter of 2013. In addition, net income from discontinued operations in the fourth quarter of 2014 was $967 million, compared to a net loss of $506 million in the fourth quarter of 2013.

On October 29, 2014, we closed the sale of Motorola Mobile business. Financial results of Motorola Mobile are presented as Net income (loss) from discontinued operations on the Consolidated Statements of Income for the three and twelve months ended December 31, 2013 and 2014 through the date of sale. The sale resulted in a gain of $740 million, net of tax, which was included in Net income (loss) from discontinued operations on the Consolidated Statements of Income for the three and twelve months ended December 31, 2014. All references to results of our operations have been retroactively restated for all prior periods to exclude the results from Motorola Mobile.

On April 2, 2014, we issued shares of Class C capital stock as a dividend to our stockholders. Except for the number of authorized shares and par value, all references to share and per share amounts have been retroactively restated for all prior periods shown to reflect the stock split, which was effected in the form of a stock dividend.

Q4 Financial Highlights

Revenues and Monetization – Google Inc. revenues for the quarter ended December 31, 2014 were $18.10 billion, representing a 15% increase over fourth quarter of 2013 revenues of $15.71 billion.

Sites Revenues – Our sites generated revenues of $12.43 billion, or 69% of total revenues, in the fourth quarter of 2014. This represents an 18% increase over fourth quarter 2013 sites revenues of $10.54 billion.

Network Revenues – Our partner sites generated revenues of $3.72 billion, or 20% of total revenues, in the fourth quarter of 2014. This represents a 6% increase over fourth quarter 2013 network revenues of $3.52 billion.

Other Revenues – Other revenues were $1.95 billion, or 11% of total revenues, in the fourth quarter of 2014. This represents a 19% increase over fourth quarter 2013 other revenues of $1.65 billion.

International Revenues – Our revenues from outside of the United States totaled $10.23 billion, representing 56% of total revenues in the fourth quarter of 2014, compared to 58% in the third quarter of 2014 and 56% in the fourth quarter of 2013. Our revenues from the United Kingdom totaled $1.66 billion, representing 9% of total revenues in the fourth quarter of 2014, compared to 10% in the fourth quarter of 2013.

Foreign Exchange Impact on Revenues – Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the third quarter of 2014 through the fourth quarter of 2014, our revenues in the fourth quarter of 2014 would have been $541 million higher. Excluding gains related to our foreign exchange risk management program, had foreign exchange rates remained constant from the fourth quarter of 2013 through the fourth quarter of 2014, our revenues in the fourth quarter of 2014 would have been $616 million higher. In the fourth quarter of 2014, we recognized a benefit of $148 million to revenues through our foreign exchange risk management program, compared to $3 million in the fourth quarter of 2013.

Reconciliations of our non-GAAP international revenues excluding the impact of foreign exchange and hedging to GAAP international revenues are included at the end of this release.

Paid Clicks – Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 14% over the fourth quarter of 2013 and increased approximately 11% over the third quarter of 2014. Sites paid clicks, which include clicks related to ads we serve on Google owned and operated properties across different geographies and devices including search, YouTube engagement ads like TrueView, and other owned and operated properties including Maps and Finance, increased approximately 25% over the fourth quarter of 2013 and increased approximately 18% over the third quarter of 2014. Network paid clicks, which include clicks related to ads served on non-Google properties participating in our AdSense for Search, AdSense for Content, and AdMob businesses, decreased approximately 11% over the fourth quarter of 2013 and decreased approximately 7% over the third quarter of 2014.

Cost-Per-Click – Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 3% over the fourth quarter of 2013 and decreased approximately 3% over the third quarter of 2014. Cost-per-click for Google sites decreased approximately 8% over the fourth quarter of 2013 and decreased approximately 8% over the third quarter of 2014. Network cost-per-click increased approximately 6% over the fourth quarter of 2013 and increased approximately 10% over the third quarter of 2014.

Traffic Acquisition Costs – Traffic acquisition costs (TAC), the portion of revenues shared with Google’s partners, increased to $3.62 billion in the fourth quarter of 2014, compared to $3.31 billion in the fourth quarter of 2013. TAC as a percentage of advertising revenues was 22% in the fourth quarter of 2014, compared to 24% in the fourth quarter of 2013.

The majority of TAC is related to amounts ultimately paid to our Network members, which totaled $2.66 billion in the fourth quarter of 2014. TAC also includes amounts paid to our distribution partners who distribute our browser or otherwise direct search queries to our website, which totaled $968 million in the fourth quarter of 2014.

Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, content acquisition costs, revenue share payments to mobile carriers and original equipment manufacturers, and hardware inventory costs, increased to $3.30 billion, or 18% of revenues, in the fourth quarter of 2014, compared to $2.94 billion, or 19% of revenues, in the fourth quarter of 2013.

Operating Expenses – Operating expenses, other than cost of revenues, were $6.78 billion in the fourth quarter of 2014, or 37% of revenues, compared to $5.03 billion in the fourth quarter of 2013, or 32% of revenues.

Depreciation and Loss on Disposal of Property and Equipment and Amortization Expenses – Depreciation and loss on disposal of property and equipment and amortization and impairment of intangibles and other assets were $1.27 billion for the fourth quarter of 2014, compared to $1.04 billion for the fourth quarter of 2013.

Stock-Based Compensation (SBC) – In the fourth quarter of 2014, the total charge related to SBC from continuing operations was $1,201 million, compared to $873 million in the fourth quarter of 2013. We currently estimate SBC charges for grants made to employees prior to December 31, 2014 to be approximately $4.30 billion for 2015. This estimate does not include expenses to be recognized related to employee stock awards that are granted after December 31, 2014.

Operating Income – GAAP operating income in the fourth quarter of 2014 was $4.40 billion, or 24% of revenues. This compares to GAAP operating income of $4.43 billion, or 28% of revenues, in the fourth quarter of 2013. Non-GAAP operating income in the fourth quarter of 2014 was $5.60 billion, or 31% of revenues. This compares to non-GAAP operating income of $5.30 billion, or 34% of revenues, in the fourth quarter of 2013.

Interest and Other Income, Net – Interest and other income, net, was $128 million in the fourth quarter of 2014, compared to $112 million in the fourth quarter of 2013.

Income Taxes – Our effective tax rate was 16% for the fourth quarter of 2014.

Net Income (Loss) from Discontinued Operations – Net income from discontinued operations in the fourth quarter of 2014 was $967 million, compared to a net loss of $506 million in the fourth quarter of 2013. Net income from discontinued operations in the fourth quarter of 2014 includes a gain of $740 million, net of tax, from the sale of Motorola Mobile business.

Net Income – GAAP consolidated net income in the fourth quarter of 2014 was $4.76 billion, compared to $3.38 billion in the fourth quarter of 2013. Non-GAAP consolidated net income was $4.74 billion in the fourth quarter of 2014, compared to $4.57 billion in the fourth quarter of 2013. GAAP EPS in the fourth quarter of 2014 was $6.91 on 688 million diluted shares outstanding, compared to $4.95 in the fourth quarter of 2013 on 682 million diluted shares outstanding. Non-GAAP EPS in the fourth quarter of 2014 was $6.88, compared to $6.70 in the fourth quarter of 2013.

Cash Flow and Capital Expenditures – Net cash provided by operating activities in the fourth quarter of 2014 totaled $6.36 billion, compared to $5.24 billion in the fourth quarter of 2013. In the fourth quarter of 2014, capital expenditures were $3.55 billion, the majority of which was for real estate purchases, production equipment, and data center construction. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the fourth quarter of 2014, free cash flow was $2.81 billion compared to $2.98 billion in the fourth quarter of 2013.

We expect to continue to make significant capital expenditures.

A reconciliation of free cash flow to net cash provided by operating activities, the GAAP measure of liquidity, is included at the end of this release.

Cash – As of December 31, 2014, cash, cash equivalents, and marketable securities were $64.40 billion.

Headcount – On a worldwide basis, we employed 53,600 full-time employees as of December 31, 2014, compared to 51,564 full-time employees as of September 30, 2014.

WEBCAST AND CONFERENCE CALL INFORMATION

A live audio webcast of Google’s fourth quarter and fiscal year 2014 earnings release call will be available at http://investor.google.com/webcast.html. The call begins today at 1:30 PM (PT) / 4:30 PM (ET). This press release, the financial tables, as well as other supplemental information including the reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, are also available on that site.

We also announce investor information, including news and commentary about our business and financial performance, SEC filings, notices of investor events and our press and earnings releases, on our investor relations website (http://investor.google.com) and our investor relations Google+ page (https://plus.google.com/+GoogleInvestorRelations/posts).

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that involve risks and uncertainties. These statements include statements regarding our investments in areas of strategic focus, our expected SBC charges, and our plans to make significant capital expenditures. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, unforeseen changes in our hiring patterns and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2013 and our most recent Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, which are on file with the SEC and are available on our investor relations website at investor.google.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2014. All information provided in this release and in the attachments is as of January 29, 2015, and we undertake no duty to update this information unless required by law.

ABOUT NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating margin, non-GAAP net income, non-GAAP EPS, free cash flow, and non-GAAP international revenues. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned “Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures,” “Reconciliation from net cash provided by operating activities to free cash flow,” and “Reconciliation from GAAP international revenues to non-GAAP international revenues” included at the end of this release.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results, meaning our operating performance excluding not only non-cash charges, such as SBC, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance and liquidity as well as comparisons to our competitors’ operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

Non-GAAP operating income and operating margin. We define non-GAAP operating income as operating income excluding expenses related to SBC, and, as applicable, other special items. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenues. Google considers these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of SBC, and as applicable, other special items so that Google’s management and investors can compare Google’s recurring core business operating results over multiple periods. Because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, Google’s management believes that providing a non-GAAP financial measure that excludes SBC allows investors to make meaningful comparisons between Google’s recurring core business operating results and those of other companies, as well as providing Google’s management with an important tool for financial and operational decision making and for evaluating Google’s own recurring core business operating results over different periods of time. There are a number of limitations related to the use of non-GAAP operating income versus operating income calculated in accordance with GAAP. First, non-GAAP operating income excludes some costs, namely, SBC, that are recurring. SBC has been and will continue to be for the foreseeable future a significant recurring expense in Google’s business. Second, SBC is an important part of our employees’ compensation. Third, the components of the costs that we exclude in our calculation of non-GAAP operating income may differ from the components that our peer companies exclude when they report their results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating income calculated in accordance with GAAP.

Non-GAAP net income and EPS. We define non-GAAP net income as net income excluding expenses related to SBC and, as applicable, other special items less the related tax effects, as well as net income (loss) from discontinued operations. The tax effects of SBC and, as applicable, other special items are calculated using the tax-deductible portion of SBC, and, as applicable, other special items, and applying the entity-specific, U.S. federal and blended state tax rates. We define non-GAAP EPS as non-GAAP net income divided by the weighted average outstanding shares, on a fully-diluted basis. We consider these non-GAAP financial measures to be useful metrics for management and investors for the same reasons that Google uses non-GAAP operating income and non-GAAP operating margin. However, in order to provide a complete picture of our recurring core business operating results, we exclude from non-GAAP net income and non-GAAP EPS the tax effects associated with SBC and, as applicable, other special items. Without excluding these tax effects, investors would only see the gross effect that excluding these expenses had on our operating results. The same limitations described above regarding Google’s use of non-GAAP operating income and non-GAAP operating margin apply to our use of non-GAAP net income and non-GAAP EPS. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP EPS and evaluating non-GAAP net income and non-GAAP EPS together with net income and EPS calculated in accordance with GAAP.

Free cash flow. We define free cash flow as net cash provided by operating activities less capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, including information technology infrastructure and land and buildings, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of free cash flow also facilitates management’s comparisons of our operating results to competitors’ operating results. 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. Our management compensates for this limitation by providing information about our capital expenditures on the face of the statement of cash flows and under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly Report on Form 10-Q and Annual Report on Form 10-K. Google has computed free cash flow using the same consistent method from quarter to quarter and year to year.

Non-GAAP international revenues. We define non-GAAP international revenues as international revenues excluding the impact of foreign exchange rate movements and hedging activities. Non-GAAP international revenues are calculated by translating current quarter revenues using prior quarter and prior year exchange rates, as well as excluding any hedging gains realized in the current quarter. We consider non-GAAP international revenues as a useful metric as it facilitates management’s internal comparison to our historical performance.

The accompanying tables have more details on the non-GAAP financial measures that are most directly comparable to GAAP financial measures and the related reconciliations between these financial measures.

Image via Google
January 30, 2015

Facebook Grew Mobile Daily Active Users By 34% Over The Past Year

Facebook just released its earnings report for the fourth quarter and full year. It posted a 58% increase in yearly revenue, and a 49% increase for the quarter.

“We got a lot done in 2014. Our community continues to grow and we’re making progress towards connecting the world,” said Mark Zuckerberg.

As usual, the company gave an update on its user stats. As of December, it had an average of 890 million daily active users, which is up 18% year-over-year. At the same time it had 745 million mobile daily active users, which is a 34% year-over-year increase. That’s a lot more people using Facebook every day from their mobile devices.

Monthly active users were 1.39 billion for December, up 13% year-over-year, and mobile monthly actives were 1.19 billion, up 26%.

Facebook’s quarterly ad revenue was up 53% from the same quarter the previous year at $3.59 billion. A whopping 69% of that came from mobile ad revenue. That’s up from 53% the previous year.

Here’s the release in its entirety:

MENLO PARK, Calif., Jan. 28, 2015 /PRNewswire/ — Facebook, Inc. (NASDAQ: FB) today reported financial results for the fourth quarter and full year ended December 31, 2014.

“We got a lot done in 2014. Our community continues to grow and we’re making progress towards connecting the world,” said Mark Zuckerberg, Facebook founder and CEO.

Fourth Quarter and Full Year 2014 Financial Summary

Three Months Ended December 31, Year Ended December 31,

In millions, except percentages and per share amounts 2014 2013 2014 2013

Revenue $ 3,851 $ 2,585 $ 12,466 $ 7,872

Income from Operations

   GAAP $ 1,133 $ 1,133 $ 4,994 $ 2,804

   Non-GAAP* $ 2,219 $ 1,498 $ 7,207 $ 3,948

Operating Margin

   GAAP 29% 44% 40% 36%

   Non-GAAP* 58% 58% 58% 50%

Net Income

   GAAP $ 701 $ 523 $ 2,940 $ 1,500

   Non-GAAP* $ 1,518 $ 814 $ 4,713 $ 2,334

Diluted Earnings per Share (EPS)

   GAAP $ 0.25 $ 0.20 $ 1.10 $ 0.60

   Non-GAAP* $ 0.54 $ 0.32 $ 1.77 $ 0.93

* Non-GAAP information for the three months and the year ended December 31, 2013 has been updated to exclude amortization of intangible assets to conform to our current period presentation. See the table below titled “Reconciliation of Non-GAAP Results to Nearest GAAP Measures.”

Full Year 2014 Business Highlights

Revenue for the full year 2014 was $12.47 billion, an increase of 58% year-over-year.

Income from operations for the full year 2014 was $4.99 billion.

Net income for the full year 2014 was $2.94 billion.

Free cash flow for the full year 2014 was $3.63 billion.

Daily active users (DAUs) were 890 million on average for December 2014, an increase of 18% year-over-year.

Mobile DAUs were 745 million on average for December 2014, an increase of 34% year-over-year.

Monthly active users (MAUs) were 1.39 billion as of December 31, 2014, an increase of 13% year-over-year.

Mobile MAUs were 1.19 billion as of December 31, 2014, an increase of 26% year-over-year.

Fourth Quarter 2014 Financial Highlights

Revenue – Revenue for the fourth quarter of 2014 totaled $3.85 billion, an increase of 49%, compared with $2.59 billion in the fourth quarter of 2013. Excluding the impact of year-over-year changes in foreign exchange rates, revenue would have increased by 53%.

Revenue from advertising was $3.59 billion, a 53% increase from the same quarter last year. Excluding the impact of year-over-year changes in foreign exchange rates, revenue from advertising would have increased by 58%.

Mobile advertising revenue represented approximately 69% of advertising revenue for the fourth quarter of 2014, up from approximately 53% of advertising revenue in the fourth quarter of 2013.

Payments and other fees revenue was $257 million, a 7% increase from the same quarter last year.

Costs and expenses – GAAP costs and expenses for the fourth quarter of 2014 were $2.72 billion, an increase of 87% from the fourth quarter of 2013. Non-GAAP information for 2013 has been updated to exclude amortization of intangible assets to conform to our current period presentation. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, non-GAAP costs and expenses were $1.63 billion in the fourth quarter of 2014, up 50% compared to $1.09 billion for the fourth quarter of 2013.

Income from operations – GAAP income from operations for the fourth quarter of each of 2014 and 2013 was $1.13 billion. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, non-GAAP income from operations for the fourth quarter of 2014 was $2.22 billion, up 48% compared to $1.50 billion for the fourth quarter of 2013.

Operating margin – GAAP operating margin was 29% for the fourth quarter of 2014, compared to 44% in the fourth quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, non-GAAP operating margin was 58% for the fourth quarter of each of 2014 and 2013.

Provision for income taxes – GAAP income tax expense for the fourth quarter of 2014 was $413 million, representing a 37% effective tax rate. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, the non-GAAP effective tax rate would have been approximately 31%.

Net income and EPS – GAAP net income for the fourth quarter of 2014 was $701 million, up 34% compared to $523 million for the fourth quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, and income tax adjustments, non-GAAP net income for the fourth quarter of 2014 was $1.52 billion, up 86% compared to $814 million for the fourth quarter of 2013. GAAP diluted EPS was $0.25 in the fourth quarter of 2014, up 25% compared to $0.20 in the fourth quarter of 2013. Excluding amortization of intangible assets, share-based compensation and related payroll tax expenses, and income tax adjustments, non-GAAP diluted EPS for the fourth quarter of 2014 was $0.54, up 69% compared to $0.32 in the fourth quarter of 2013.

Capital expenditures – Capital expenditures for the fourth quarter of 2014 were $517 million.

Cash and cash equivalents and marketable securities – Cash and cash equivalents and marketable securities were $11.20 billion at the end of the fourth quarter of 2014.

Free cash flow – Free cash flow for the fourth quarter of 2014 was $1.07 billion.

Webcast and Conference Call Information

Facebook will host a conference call to discuss the results at 2 p.m. PT / 5 p.m. ET today. The live webcast of Facebook’s earnings release call can be accessed at investor.fb.com, along with the earnings press release, financial tables and slide presentation. Facebook uses the investor.fb.com website and Mark Zuckerberg’s Facebook Page (https://www.facebook.com/zuck) as means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Following the call, a replay will be available at the same website. A telephonic replay will be available for one week following the conference call at +1 (404) 537-3406 or +1 (855) 859-2056, conference ID 53903003.

About Facebook

Founded in 2004, Facebook’s mission is to give people the power to share and make the world more open and connected. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.

Contacts

Investors:
Deborah Crawford
investor@fb.com / investor.fb.com

Press:
Vanessa Chan
press@fb.com / newsroom.fb.com

Forward Looking Statements

This press release contains forward-looking statements regarding our future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors including: our ability to retain or increase users and engagement levels; our reliance on advertising revenue; our ability to continue to monetize our mobile products; risks associated with new product development and their introduction as well as other new business initiatives; our emphasis on user growth and engagement and the user experience over short-term financial results; competition; litigation; privacy and regulatory concerns; risks associated with acquisitions; security breaches; and our ability to manage growth and geographically-dispersed operations. These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed under the caption “Risk Factors” in our Quarterly Report on Form 10-Q filed with the SEC on October 30, 2014, which is available on our Investor Relations website at investor.fb.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended December 31, 2014. In addition, please note that the date of this press release is January 28, 2015, and any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: revenue excluding foreign exchange effect and advertising revenue excluding foreign exchange effect; non-GAAP costs and expenses; non-GAAP income from operations; non-GAAP net income; non-GAAP diluted shares; non-GAAP diluted earnings per share; non-GAAP operating margin; non-GAAP effective tax rate; and free cash flow. The presentation of these financial measures is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items, specifically amortization of intangible assets, share-based compensation expense, and payroll tax related to share-based compensation expense, and the related income tax effects of the aforementioned exclusions, that are recurring and will be reflected in our financial results for the foreseeable future. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP financial measures.

We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business.

We exclude the following items from one or more of our non-GAAP financial measures:

Amortization of intangible assets. We amortize intangible assets acquired in connection with acquisitions. We exclude these amortization expenses because we do not believe these expenses are reflective of ongoing operating results in the period. These amounts arise from our prior acquisitions and have no direct correlation to the operation of our business.

Share-based compensation expense. We exclude share-based compensation expense because we believe that the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance. In particular, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC 718, we believe that providing non-GAAP financial measures that exclude this expense allows investors to make more meaningful comparisons between our operating results and those of other companies. Accordingly, we believe that excluding this expense provides investors and management with greater visibility to the underlying performance of our business operations, facilitates comparison of our results with other periods, and may also facilitate comparison with the results of other companies in our industry.

Payroll tax expense related to share-based compensation. We exclude payroll tax expense related to share-based compensation expense because, without excluding these tax expenses, investors would not see the full effect that excluding share-based compensation expense had on our operating results. These expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise, which factors may vary from period to period independent of the operating performance of our business. Similar to share-based compensation expense, we believe that excluding this payroll tax expense provides investors and management with greater visibility to the underlying performance of our business operations and facilitates comparison with other periods as well as the results of other companies.

Income tax effect of amortization of intangible assets, share-based compensation and related payroll tax expenses. We believe excluding the income tax effect of non-GAAP adjustments assists investors and management in understanding the tax provision related to those adjustments and provides useful supplemental information regarding the underlying performance of our business operations.

Foreign exchange effect on revenue. We translate revenue for the three months and year ended December 31, 2014 using prior year exchange rates for our settlement currencies, which we believe is a useful metric that facilitates comparison to our historical performance.

Purchases of property and equipment; Property and equipment acquired under capital leases. We subtract both purchases of property and equipment and property and equipment acquired under capital leases in our calculation of free cash flow because we believe that these two items collectively represent the amount of property and equipment we need to procure to support our business, regardless of whether we finance such property or equipment with a capital lease. We believe that this methodology can provide useful supplemental information to help investors better understand underlying trends in our business.

For more information on our non-GAAP financial measures and a reconciliation of such measures to the nearest GAAP measure, please see the “Reconciliation of Non-GAAP Results to Nearest GAAP Measures” table in this press release.

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except for per share amounts)

(Unaudited)

Three Months EndedDecember 31, Year Ended December 31,

2014 2013 2014 2013

Revenue $ 3,851 $ 2,585 $ 12,466 $ 7,872

Costs and expenses:

Cost of revenue 653 491 2,153 1,875

Research and development 1,111 408 2,666 1,415

Marketing and sales 624 292 1,680 997

General and administrative 330 261 973 781

    Total costs and expenses 2,718 1,452 7,472 5,068

Income from operations 1,133 1,133 4,994 2,804

Interest and other income/(expense), net (19) (3) (84) (50)

Income before provision for income taxes 1,114 1,130 4,910 2,754

Provision for income taxes 413 607 1,970 1,254

Net income $ 701 $ 523 $ 2,940 $ 1,500

Less: Net income attributable to participating securities 5 3 15 9

Net income attributable to Class A and Class B common stockholders $ 696 $ 520 $ 2,925 $ 1,491

Earnings per share attributable to Class A and Class B common stockholders:

Basic $ 0.25 $ 0.21 $ 1.12 $ 0.62

Diluted $ 0.25 $ 0.20 $ 1.10 $ 0.60

Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:

Basic 2,761 2,458 2,614 2,420

Diluted 2,816 2,558 2,664 2,517

Share-based compensation expense included in costs and expenses:

Cost of revenue $ 18 $ 11 $ 62 $ 42

Research and development 685 172 1,328 604

Marketing and sales 103 42 249 133

General and administrative 90 48 198 127

    Total share-based compensation expense $ 896 $ 273 $ 1,837 $ 906

Payroll tax expenses related to share-based compensation included in costs and expenses:

Cost of revenue $ — $ — $ 3 $ 1

Research and development 6 4 33 30

Marketing and sales 2 1 9 8

General and administrative 5 48 12 54

    Total payroll tax expenses related to share-based compensation $ 13 $ 53 $ 57 $ 93

Amortization of intangible assets included in costs and expenses:

Cost of revenue $ 42 $ 7 $ 87 $ 16

Research and development 10 8 33 36

Marketing and sales 102 1 105 4

General and administrative 23 23 94 89

    Total amortization of intangible assets $ 177 $ 39 $ 319 $ 145

FACEBOOK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

December 31, 2014 December 31, 2013

Assets

Current assets:

Cash and cash equivalents $ 4,315 $ 3,323

Marketable securities 6,884 8,126

Accounts receivable, net of allowances for doubtful accounts of $39 and $38 as of December 31, 2014 andDecember 31, 2013, respectively 1,678 1,109

Prepaid expenses and other current assets 793 512

Total current assets
13,670 13,070

Property and equipment, net 3,967 2,882

Intangible assets, net 3,929 883

Goodwill 17,981 839

Other assets 637 221

Total assets $ 40,184 $ 17,895

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable $ 176 $ 87

Partners payable 202 181

Accrued expenses and other current liabilities 866 555

Deferred revenue and deposits 66 38

Current portion of capital lease obligations 114 239

Total current liabilities
1,424 1,100

Capital lease obligations, less current portion 119 237

Other liabilities 2,545 1,088

Total liabilities
4,088 2,425

Stockholders’ equity

Common stock and additional paid-in capital 30,225 12,297

Accumulated other comprehensive (loss) income (228) 14

Retained earnings 6,099 3,159

Total stockholders’ equity
36,096 15,470

Total liabilities and stockholders’ equity $ 40,184 $ 17,895

FACEBOOK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months EndedDecember 31, Year Ended December 31,

2014 2013 2014 2013

Cash flows from operating activities

Net income $ 701 $ 523 $ 2,940 $ 1,500

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 433 274 1,243 1,011

Lease abandonment — 9 (31) 117

Share-based compensation 845 273 1,786 906

Deferred income taxes (180) (58) (210) (37)

Tax benefit from share-based award activity 499 325 1,853 602

Excess tax benefit from share-based award activity (504) (324) (1,869) (609)

Other 2 17 7 56

Changes in assets and liabilities:

Accounts receivable (346) (233) (610) (378)

Prepaid expenses and other current assets (78) (78) (123) 355

Other assets (58) (107) (216) (142)

Accounts payable 19 43 31 26

Partners payable (6) 10 (28) 12

Accrued expenses and other current liabilities 130 67 328 (38)

Deferred revenue and deposits 7 2 10 8

Other liabilities 119 488 346 833

Net cash provided by operating activities 1,583 1,231 5,457 4,222

Cash flows from investing activities

Purchases of property and equipment (517) (483) (1,831) (1,362)

Purchases of marketable securities (2,889) (3,069) (9,104) (7,433)

Sales of marketable securities 1,047 555 8,438 2,988

Maturities of marketable securities 199 609 1,909 3,563

Acquisitions of businesses, net of cash acquired, and purchases of intangible assets (4,221) (131) (4,975) (368)

Change in restricted cash and deposits (235) (15) (348) (11)

Other investing activities, net — — (2) (1)

Net cash used in investing activities (6,616) (2,534) (5,913) (2,624)

Cash flows from financing activities

Net proceeds from issuance of common stock — 1,478 — 1,478

Taxes paid related to net share settlement (70) (183) (73) (889)

Proceeds from exercise of stock options 11 6 18 26

Repayment of long-term debt — — — (1,500)

Principal payments on capital lease obligations (44) (100) (243) (391)

Excess tax benefit from share-based award activity 504 324 1,869 609

Net cash provided by (used in) financing activities 401 1,525 1,571 (667)

Effect of exchange rate changes on cash and cash equivalents (52) 1 (123) 8

Net (decrease) increase in cash and cash equivalents (4,684) 223 992 939

Cash and cash equivalents at beginning of period 8,999 3,100 3,323 2,384

Cash and cash equivalents at end of period $ 4,315 $ 3,323 $ 4,315 $ 3,323

Supplemental cash flow data

Cash paid during the period for:

Interest $ 3 $ 5 $ 14 $ 38

Income taxes $ 77 $ 21 $ 184 $ 82

Cash received during the period for:

Income taxes $ — $ 2 $ 6 $ 421

Non-cash investing and financing activities:

Net change in accounts payable and accrued expenses and other current liabilities related to property and equipment additions $ 53 $ 22 $ 91 $ 53

Property and equipment acquired under capital leases $ — $ — $ — $ 11

Fair value of shares issued related to acquisitions of businesses $ 12,987 $ — $ 14,344 $ 77

Reconciliation of Non-GAAP Results to Nearest GAAP Measures*

(In millions, except percentages and per share amounts)

(Unaudited)

Three Months Ended December 31, Year Ended December 31,

2014 2013 2014 2013

GAAP revenue $ 3,851 $ 2,585 $ 12,466 $ 7,872

Foreign exchange effect on 2014 revenue using 2013 rates (103) (61)

Revenue excluding foreign exchange effect $ 3,954 $ 12,527

GAAP revenue year-over-year change % 49% 58%

Revenue excluding foreign exchange effect year-over-year change % 53% 59%

GAAP advertising revenue $ 3,594 $ 2,344 $ 11,492 $ 6,986

Foreign exchange effect on 2014 advertising revenue using 2013 rates (103) (61)

Advertising revenue excluding foreign exchange effect $ 3,697 $ 11,553

GAAP advertising revenue year-over-year change % 53% 65%

Advertising revenue excluding foreign exchange effect year-over-year change % 58% 65%

GAAP costs and expenses $ 2,718 $ 1,452 $ 7,472 $ 5,068

Share-based compensation expense (896) (273) (1,837) (906)

Payroll tax expenses related to share-based compensation (13) (53) (57) (93)

Amortization of intangible assets (177) (39) (319) (145)

Non-GAAP costs and expenses $ 1,632 $ 1,087 $ 5,259 $ 3,924

GAAP income from operations $ 1,133 $ 1,133 $ 4,994 $ 2,804

Share-based compensation expense 896 273 1,837 906

Payroll tax expenses related to share-based compensation 13 53 57 93

Amortization of intangible assets 177 39 319 145

Non-GAAP income from operations $ 2,219 $ 1,498 $ 7,207 $ 3,948

GAAP net income $ 701 $ 523 $ 2,940 $ 1,500

Share-based compensation expense 896 273 1,837 906

Payroll tax expenses related to share-based compensation 13 53 57 93

Amortization of intangible assets 177 39 319 145

Income tax adjustments (269) (74) (440) (310)

Non-GAAP net income $ 1,518 $ 814 $ 4,713 $ 2,334

GAAP and Non-GAAP diluted shares 2,816 2,558 2,664 2,517

GAAP diluted earnings per share $ 0.25 $ 0.20 $ 1.10 $ 0.60

Net income attributable to participating securities — — (0.01) —

Non-GAAP adjustments to net income 0.29 0.12 0.68 0.33

Non-GAAP diluted earnings per share $ 0.54 $ 0.32 $ 1.77 $ 0.93

GAAP operating margin 29% 44% 40% 36%

Share-based compensation expense 23% 11% 15% 12%

Payroll tax expenses related to share-based compensation —% 2% —% 1%

Amortization of intangible assets 5% 2% 3% 2%

Non-GAAP operating margin 58% 58% 58% 50%

GAAP income before provision for income taxes $ 1,114 $ 1,130 $ 4,910 $ 2,754

GAAP provision for income taxes 413 607 1,970 1,254

GAAP effective tax rate 37% 54% 40% 46%

GAAP income before provision for income taxes $ 1,114 $ 1,130 $ 4,910 $ 2,754

Share-based compensation and related payroll tax expenses 909 326 1,894 999

Amortization of intangible assets 177 39 319 145

Non-GAAP income before provision for income taxes $ 2,200 $ 1,495 $ 7,123 $ 3,898

Non-GAAP provision for income taxes 682 681 2,410 1,564

Non-GAAP effective tax rate 31% 46% 34% 40%

Net cash provided by operating activities $ 1,583 $ 1,231 $ 5,457 $ 4,222

Purchases of property and equipment (517) (483) (1,831) (1,362)

Property and equipment acquired under capital leases — — — (11)

Free cash flow $ 1,066 $ 748 $ 3,626 $ 2,849

Image via Mark Zuckerberg, Facebook

January 28, 2015

Yahoo Really Wants That Apple Deal

Yahoo made some big waves in late 2014 when it partnered with Mozilla to replace Google as the default search experience in Firefox. Apple’s similar deal with Google is near its expiration, and Yahoo CEO Marissa Mayer seems really interested in that.

Do you think Apple should drop Google and go with a different search provider like Yahoo or Microsoft? Share your thoughts in the comments.

Yahoo reported its Q4 earnings on Tuesday. During the conference call, Mayer said this about the Mozilla partnership in her prepared remarks (via SeekingAlpha’s transcript):

External sources estimate that Mozilla has 3% to 5% of the North American search market. So this is a significant opportunity. We began serving Mozilla partly through December, so we’ve not yet had a complete calendar month of data on the deal but we are already impressed with the volume Mozilla search has brought to our marketplace and the insightfulness and agility of the Mozilla team…Our new partnership with Mozilla gives us reason to be optimistic that search will continue to be a growth story.

During the question-and-answer session, Mayer was asked about Yahoo’s ongoing search partnership with Microsoft (which she reportedly hates) as well as the company’s new deal with Mozilla to become the default search experience in the Firefox browser. She said the “search alliance” hits the halfway point later in Q1, and that the deal has provisions that allow them to consider adjustments to its relationship with Microsoft. They’re actively exploring options and different models, she said.

She said:

On Mozilla overall we haven’t disclosed the financial arrangement between the two companies…it’s about 3% to 5% of the North America search market and overall, the volume’s been fantastic and the teams are just terrific to work with. That said it’s a really significant partnership and will always take time to equilibrate and tune our performance with the Mozilla traffic. And so we are very hopeful about it but at this point really too early to tell.

There have been reports that Yahoo is also interested in taking Google’s place as the default search experience in Apple’s Safari browser, which would be huge for the company in terms of gaining more significant market share. Apple has in recent years been distancing itself more and more from Google. Mayer was asked about this during the Q&A as well. She said:

The Safari platform is basically one of the premiere search engine in the world, if not the premiere search engine in the world. We are definitely in the search distribution business. I think we stated that really clearly in the past and I think with Mozilla and also in addition we brought Amazon and eBay onboard with smaller distribution partnerships in Q4, we are in search distribution business and anyone who is in that business needs to be interested in the Safari deal.

The Safari users are among the most engaged and lucrative users in the world and it’s something that we would really like to be able to provide. We work really closely with Mozilla to ultimately bring to their users an experience that they designed and that they feel really suit those users and we welcome the opportunity with any other partner to do the same, particularly one with Apple’s volume and end user base.

In other words, yeah, she really wants that deal. Kara Swisher who has covered Yahoo for years probably better than anyone else in the industry, liveblogged the earnings call, and commented, “Mayer appeared to practically salivate at the prospect if Apple throws over Google for someone else. Issue: Microsoft. Another issue: Yahoo search technology would have to be majorly upgraded.”

In response to another question, Mayer went on to say more about Yahoo as a search partner in response to another question:

Well certainly on search and across the board we pride ourselves on being the best partner in Silicon Valley. We work across the board with Google, Microsoft, Apple, Facebook, Twitter, we have different Samsung, we have different partnerships with all of these different providers and it’s not easy, they can’t look at each other but we work well with them.

She said the reason they work so well is because of how flexible Yahoo is.

In 2014, things started to get really interesting for Yahoo’s search business for the first time in a long time. 2015 may just shape up to be a major comeback year for the company on that front.

Google is already showing concern about Yahoo’s place in Firefox. If Yahoo scores the Safari deal, it’s going to be a whole new ballgame.

Google has been trying to get people to switch back with messages like this:

This one's for all the Google Search-loving Firefox fans out there → http://t.co/c3C0D9SC8v pic.twitter.com/ocZAOWTrvf

— Google (@google) January 21, 2015

And one on the Google homepage in the Firefox browser, which says, “Get to Google faster. Make Google your default engine.”

Google also reported its earnings this week, and also discussed Yahoo’s deal with Mozilla a little. CFO Patrick Pichette said (via Seeking Alpha’s transcript):

You’ve all heard the announcements about Mozilla. And so when we don’t comment on the details of any of our partnerships that we have, having said that, we continue to do two things that really matter. One is our users continue to actually go in, if they love Google, they will continue to find Google, whichever platform, whichever browser, and that’s really what we’ve focused on doing.

And then the second piece is the way to win this in the long-term, right? It’s very simple. You just make wonderful products. And when you make wonderful products that are magical people will find them….partnerships matter. But at the core of it, you need partnership, because you have a phenomenal product. And that’s what we’re going to continue to build this amazing company.

Last week, Merkle | RKG released its Digital Marketing Report for Q4 2014, which looked at the impact of the Yahoo/Mozilla deal on paid search.

“We’re now able to assess the impact of the deal on Yahoo’s share of Firefox paid search traffic, which grew from 12% at the beginning of December to 30% by the end of the year,” the report said. “However, digging deeper reveals that Yahoo’s share of Firefox 34 paid clicks has been in decline ever since the first big wave of updates in the second week of December. While the initial rollout saw Yahoo’s share rise to a peak of 43% on December 10th, that figure was just 36% by December’s end.”

“This is primarily the result of users switching the default search engine of their browsers back to Google, as shown by the corresponding increase in Google’s share of Firefox 34 paid clicks throughout the month of December,” it added. “All in all, it appears the deal will move about 2% or less of total paid search traffic from Google to Yahoo. This is far less than the 10%+ of paid traffic that stands to be on the table if Safari default search were to change hands, which news outlets have reported is a possibility in 2015.”

According to that report, Bing and Yahoo outpaced Google in paid search growth, not only because of the Yahoo Firefox deal, but also rapid growth from Bing Product Ads.

Do you think Google is in danger of losing any significant amount of market share? Do you think Apple will drop Google? Would it go with Yahoo? Tell us what you think.

Note: This article has been updated from a previous version to include additional information.

Image via Wikimedia Commons

January 28, 2015
Netflix Is Getting ‘The Interview’ This Saturday

Netflix just reported its Q4 earnings with a record 13 million new members in 2014, compared to 11.1 million in 2013. The company now has a grand total of 57.4 million members. It added 4.33 million members in Q4 alone. Here’s a look at the financials:

Perhaps more interesting is that Netflix used the opportunity to announce that it will be offering The Interview in the U.S. and Canada beginning on Saturday, January 24, just thirty days after it debuted in theaters and on VOD.

I probably don’t have to tell you about all the controversy surrounding the film, which had a direct impact on how it was released (limited in theaters and more broadly on VOD platforms). It’s truly remarkable that Netflix is already getting the title. It will no doubt be a wildly popular one on the streaming service.

By January 7, the film had already made $31 million online.

Netflix also said its first original feature film, Crouching Tiger, Hidden Dragon II: The Green Destiny, is in post production, and will debut on August 26 in all Netflix territories. The company expects to open the film on select IMAX screens on the same day.

You can read the company’s letter to shareholders in which it gives updates on its various projects and numbers here.

Image via The Interview, Facebook

January 20, 2015
Netflix Earnings To Be Reported Next Month

Netflix announced the date of its next earnings call. The company will report its fourth-quarter 2014 financial results and business outlook on Tuesday, January 20 at 1:05 p.m. Pacific Time

Netflix will keep in line with its previous style of addressing its results by participating in a video question and answer session.

Netflix said in an announcement, “At that time the company will issue a brief advisory release via newswire containing a link to the fourth-quarter 2014 financial results and letter to shareholders on its website. Netflix Chief Executive Officer Reed Hastings, Chief Financial Officer David Wells and Chief Content
Officer Ted Sarandos will host a live video discussion about the Company’s financial results and business outlook at 2:00 p.m. Pacific Time. The discussion will be moderated by Mark Mahaney, RBC Capital Markets and Rich Greenfield, BTIG Research with questions submitted via email. Questions from investors should be submitted as well in advance as possible for inclusion to mark.mahaney@rbccm.com or rgreenfield@btig.com.”

The live broadcast and archive of the discussion will be available on the Netflix Investor Relations YouTube channel.

According to SeekingAlpha, analysts are expecting Q4 EPS of $0.45 on revenue of $1.48B.

Image via Netflix`

December 30, 2014

Cisco Earnings Released, CFO Out

Cisco just reported its Q1 earnings for the quarter ended October 25. In a return to growth, the company reported its strongest Q1 revenue ever at $12.2 billion, which is up 1% year-over-year. Earnings per share were $0.35 GAAP and $0.54 non-GAAP.

Cisco also announced that executive vice president and CFO Frank Calderoni is stepping down at the beginning of the new year, and that it will appoint senior vice president, Business Technology and Operations Finance Kelly A. Kramer to succeed him.

“We are pleased with our results and are very comfortable in our strategy to deliver innovative solutions which enable the next generation of IT and the Internet of Everything. This was our strongest Q1 ever in terms of revenue, non-GAAP operating income, and non-GAAP EPS,” said Cisco chairman and CEO John Chambers. “We continue to make progress towards becoming the #1 IT company in the world. We are still in a tough environment, but seeing encouraging trends as cities, businesses, governments and schools are becoming more digitized. Our solutions continue to drive positive outcomes and enable productivity through the combination of collaboration, mobility, security and efficiency across our customers’ businesses.”

Here’s the release in its entirety:

SAN JOSE, CA — Nov 12, 2014 – Cisco (NASDAQ: CSCO)

Q1 Revenue: $12.2 billion (increase of 1% year over year)

Q1 Earnings per Share: $0.35 GAAP; $0.54 non-GAAP

Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its first quarter results for the period ended October 25, 2014. Cisco reported first quarter revenue of $12.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.8 billion or $0.35 per share, and non-GAAP net income of $2.8 billion or $0.54 per share.

“We are pleased with our results and are very comfortable in our strategy to deliver innovative solutions which enable the next generation of IT and the Internet of Everything. This was our strongest Q1 ever in terms of revenue, non-GAAP operating income, and non-GAAP EPS,” stated Cisco chairman and CEO John Chambers. “We continue to make progress towards becoming the #1 IT company in the world. We are still in a tough environment, but seeing encouraging trends as cities, businesses, governments and schools are becoming more digitized. Our solutions continue to drive positive outcomes and enable productivity through the combination of collaboration, mobility, security and efficiency across our customers’ businesses.”

GAAP Results

Q1 2015 Q1 2014 Vs. Q1 2014

Revenue $ 12.2 billion $ 12.1 billion 1.3 %

Net Income $ 1.8 billion $ 2.0 billion (8.4 )%

Earnings per Share $ 0.35 $ 0.37 (5.4 )%

Non-GAAP Results

Q1 2015 Q1 2014 Vs. Q1 2014

Net Income $ 2.8 billion $ 2.9 billion (2.3 )%

Earnings per Share $ 0.54 $ 0.53 1.9 %

A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table following the Consolidated Statements of Operations.

Cisco will discuss first quarter results and business outlook on a conference call and webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

CFO Transition
Frank Calderoni recently notified Cisco of his decision to step down as executive vice president and chief financial officer of Cisco, effective January 1, 2015. Cisco plans to appoint Kelly A. Kramer to succeed Mr. Calderoni. She is currently senior vice president, Business Technology and Operations Finance of Cisco.

Cash and Cash Equivalents and Investments

Cash flows from operations were $2.5 billion for the first quarter of fiscal 2015, compared with $3.6 billion for the fourth quarter of fiscal 2014, and compared with $2.6 billion for the first quarter of fiscal 2014.

Cash and cash equivalents and investments were $52.1 billion at the end of the first quarter of fiscal 2015, compared with $52.1 billion at the end of the fourth quarter of fiscal 2014, and compared with $48.2 billion at the end of the first quarter of fiscal 2014.

Dividends and Stock Repurchase Program

During the first quarter of fiscal 2015, Cisco paid a cash dividend of $0.19 per common share, or $973 million.

Cisco repurchased approximately 41 million shares of common stock under the stock repurchase program at an average price of $24.58 per share for an aggregate purchase price of $1.0 billion during the first quarter of fiscal 2015. As of October 25, 2014, Cisco had repurchased and retired 4.3 billion shares of Cisco common stock at an average price of $20.66 per share for an aggregate purchase price of approximately $89.5 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $7.5 billion with no termination date.

“We had a solid quarter delivering results for Q1 consistent with our expectations,” stated Frank Calderoni, Cisco executive vice president and chief financial officer. “Our strong cash flow, balance sheet, and ongoing commitment to return capital to shareholders demonstrates the strength of our financial strategy.”

Internet of Everything

Cisco unveiled new Cisco® Connected Transportation Solutions designed to offer a safer and more productive commuter experience via the Internet of Everything (IoE).

Cisco and the City of Berlin announced an IoE Innovation Center, to be located in Berlin, which will focus on manufacturing, transport and logistics.

Marking the next phase of its expansion in India, Cisco unveiled the “Cisco Smart City” as a blueprint for the future of smart and connected communities in India.

Cisco announced new Connected Safety and Security solutions that add intelligence and analytics from the core to the edge to help protect cities and businesses.

Cisco outlined an expansion of its fog computing strategy with the second phase of its IOx platform for industrial scale Internet of Things (IoT) deployments.

Addressing the growing demand for IoE skills, the Cisco Networking Academy announced the first global IoE curriculum.

Fast IT

Cisco broadened its storage networking portfolio to address the massive data growth across small-to cloud-scale storage networks.

Cisco introduced innovations to its Unified Computing System™ business, delivering a broader and more powerful portfolio of technologies to help customers capitalize on rapidly changing landscapes in business and IT.

Cisco introduced ASA with FirePOWER — the industry’s first threat-focused next-generation firewall.

Cisco announced that it has added the support of more than 30 additional companies to its Intercloud ecosystem, expanding the reach of the global Intercloud by 250 additional data centers in 50 countries.

Cisco announced that Shell has deployed the Cisco Secure Ops Solution to increase security maturity level by improving its cyber security and risk management while lowering costs of delivery and operations.

Cisco expanded its Videoscape™ Virtualized Video Processing solution, the industry’s first fully orchestrated and virtualized solution, to enable faster, cost-effective scaling for multi-screen video workers.

Innovation

Cisco and Red Hat announced a new integrated infrastructure solution for OpenStack-based cloud deployments.

Cisco completed the acquisition of Metacloud, Inc. Metacloud’s OpenStack-based cloud platform is expected to help accelerate Cisco’s strategy to build the world’s largest global Intercloud.

Cisco completed the acquisition of Memoir Systems enabling the proliferation of affordable, fast memory for existing Cisco switch ASICs and helping advance Cisco’s ASIC innovations necessary to meet next-generation IT requirements.

Editor’s Notes:

Q1 fiscal year 2015 conference call to discuss Cisco’s results along with its business outlook will be held on Wednesday, November 12, 2014 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).

Conference call replay will be available from 4:00 p.m. Pacific Time, November 12, 2014 to 11:59 p.m. Pacific Time, on November 19, 2014 at 1-800-835-3804 (United States) or 1-402-280-1654 (international). The replay will also be available via webcast from November 12, 2014 through January 16, 2015 on the Cisco Investor Relations website at http://investor.cisco.com.

Additional information regarding Cisco’s financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, November 12, 2014. Text of the conference call’s prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with GAAP reconciliation information, will be available on the Cisco Investor Relations website at http://investor.cisco.com.

About Cisco
Cisco (NASDAQ: CSCO) is the worldwide leader in IT that helps companies seize the opportunities of tomorrow by proving that amazing things can happen when you connect the previously unconnected. For ongoing news, please go to http://thenetwork.cisco.com.

This release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as our strategy, our goal to become the #1 IT company, return of capital to shareholders and the ability of our solutions to drive positive outcomes and enable productivity in our customers’ businesses) and the future financial performance of Cisco that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, including our foundational priorities, and in certain geographical locations; the timing of orders and manufacturing and customer lead times; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, intellectual property, antitrust, shareholder and other matters, and governmental investigations; natural catastrophic events; a pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco’s most recent report on Form 10-K filed on September 9, 2014. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco’s most recent report on Form 10-K as it may be amended from time to time. Cisco’s results of operations for the three months ended October 25, 2014 are not necessarily indicative of Cisco’s operating results for any future periods. Any projections in this release are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

This release includes non-GAAP net income, non-GAAP effective tax rates, non-GAAP net income per share data, non-GAAP inventory turns and free cash flow.

These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco’s results of operations in conjunction with the corresponding GAAP measures.

Cisco believes that the presentation of non-GAAP net income, non-GAAP effective tax rates, and non-GAAP net income per share data, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and results of operations. In addition, Cisco believes that the presentation of non-GAAP inventory turns provides useful information to investors and management regarding financial and business trends relating to inventory management based on the operating activities of the periods presented. Cisco believes that the presentation of free cash flow, which it defines as the net cash provided by operating activities less cash used to acquire property and equipment, to be a liquidity measure that provides useful information to management and investors because of its intent to return a stated percentage of free cash flow to shareholders in the form of dividends and stock repurchases. Cisco further regards free cash flow as a useful measure because it reflects cash that can be used to, among other things, invest in its business, make strategic acquisitions, repurchase common stock, and pay dividends on its common stock, after deducting capital investments.

For its internal budgeting process, Cisco’s management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, impact to cost of sales from purchase accounting adjustments to inventory, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation and other contingencies, the income tax effects of the foregoing, and significant tax matters. Cisco’s management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results. For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.

Copyright © 2014 Cisco and/or its affiliates. All rights reserved. Cisco, the Cisco logo, Unified Computing System, and Videoscape are trademarks or registered trademarks of Cisco and/or its affiliates in the U.S. and other countries. To view a list of Cisco trademarks, go to: www.cisco.com/go/trademarks. Third-party trademarks mentioned in this document are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. This document is Cisco Public Information.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

Three Months Ended

October 25,
2014 October 26,
2013

REVENUE:

Product $ 9,435 $ 9,397

Service 2,810 2,688

Total revenue 12,245 12,085

COST OF SALES:

Product 3,919 3,747

Service 993 931

Total cost of sales 4,912 4,678

GROSS MARGIN 7,333 7,407

OPERATING EXPENSES:

Research and development 1,583 1,724

Sales and marketing 2,515 2,411

General and administrative 504 515

Amortization of purchased intangible assets 71 65

Restructuring and other charges 318 237

Total operating expenses 4,991 4,952

OPERATING INCOME 2,342 2,455

Interest income 179 169

Interest expense (139 ) (140 )

Other income (loss), net (22 ) 56

Interest and other income (loss), net 18 85

INCOME BEFORE PROVISION FOR INCOME TAXES 2,360 2,540

Provision for income taxes 532 544

NET INCOME $ 1,828 $ 1,996

Net income per share:

Basic $ 0.36 $ 0.37

Diluted $ 0.35 $ 0.37

Shares used in per-share calculation:

Basic 5,112 5,378

Diluted 5,156 5,430

Cash dividends declared per common share $ 0.19 $ 0.17

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME

(In millions, except per-share amounts)

Three Months Ended

October 25,
2014 October 26,
2013

GAAP net income $ 1,828 $ 1,996

Adjustments to cost of sales:

Share-based compensation expense 48 43

Amortization of acquisition-related intangible assets 181 167

Patent portfolio charge 188 —

Total adjustments to GAAP cost of sales 417 210

Adjustments to operating expenses:

Share-based compensation expense 325 269

Amortization of acquisition-related intangible assets 71 65

Acquisition-related/divestiture costs 101 308

Significant asset impairments and restructurings 318 237

Total adjustments to GAAP operating expenses 815 879

Total adjustments to GAAP income before provision for income taxes 1,232 1,089

Income tax effect of non-GAAP adjustments (258 ) (218 )

Non-GAAP net income $ 2,802 $ 2,867

Diluted net income per share:

GAAP $ 0.35 $ 0.37

Non-GAAP $ 0.54 $ 0.53

RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE TAX RATE

Three Months Ended

October 25,
2014 October 26,
2013

GAAP effective tax rate 22.5 % 21.4 %

Tax effect of non-GAAP adjustments to net income (0.5 )% (0.4 )%

Non-GAAP effective tax rate 22.0 % 21.0 %

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

October 25,
2014 July 26,
2014

ASSETS

Current assets:

Cash and cash equivalents $ 4,387 $ 6,726

Investments 47,720 45,348

Accounts receivable, net of allowance for doubtful accounts of $276 at October 25, 2014 and $265 at July 26, 2014 4,375 5,157

Inventories 1,676 1,591

Financing receivables, net 4,265 4,153

Deferred tax assets 2,689 2,808

Other current assets 1,284 1,331

Total current assets 66,396 67,114

Property and equipment, net 3,233 3,252

Financing receivables, net 3,691 3,918

Goodwill 24,364 24,239

Purchased intangible assets, net 3,066 3,280

Other assets 3,228 3,331

TOTAL ASSETS $ 103,978 $ 105,134

LIABILITIES AND EQUITY

Current liabilities:

Short-term debt $ 1,357 $ 508

Accounts payable 1,022 1,032

Income taxes payable 94 159

Accrued compensation 2,638 3,181

Deferred revenue 9,449 9,478

Other current liabilities 5,496 5,451

Total current liabilities 20,056 19,809

Long-term debt 19,615 20,401

Income taxes payable 1,504 1,851

Deferred revenue 4,295 4,664

Other long-term liabilities 1,793 1,748

Total liabilities 47,263 48,473

Total equity 56,715 56,661

TOTAL LIABILITIES AND EQUITY $ 103,978 $ 105,134

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Three Months Ended

October 25,
2014 October 26,
2013

Cash flows from operating activities:

Net income $ 1,828 $ 1,996

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization, and other 596 591

Share-based compensation expense 369 309

Provision for receivables 43 23

Deferred income taxes 236 130

Excess tax benefits from share-based compensation (71 ) (55 )

(Gains) losses on investments and other, net 29 (108 )

Change in operating assets and liabilities, net of effects of acquisitions and divestitures:

Accounts receivable 723 361

Inventories (107 ) 22

Financing receivables (2 ) (37 )

Other assets 5 28

Accounts payable (5 ) (29 )

Income taxes, net (398 ) (389 )

Accrued compensation (495 ) (460 )

Deferred revenue (328 ) (307 )

Other liabilities 68 574

Net cash provided by operating activities 2,491 2,649

Cash flows from investing activities:

Purchases of investments (9,761 ) (8,835 )

Proceeds from sales of investments 3,450 4,733

Proceeds from maturities of investments 3,906 4,058

Acquisition of businesses, net of cash and cash equivalents acquired (184 ) (2,447 )

Purchases of investments in privately held companies (50 ) (134 )

Return of investments in privately held companies 42 33

Acquisition of property and equipment (285 ) (315 )

Proceeds from sales of property and equipment 3 156

Other 2 (4 )

Net cash used in investing activities (2,877 ) (2,755 )

Cash flows from financing activities:

Issuances of common stock 353 444

Repurchases of common stock – repurchase program (1,088 ) (1,898 )

Shares repurchased for tax withholdings on vesting of restricted stock units (342 ) (286 )

Short-term borrowings, original maturities less than 90 days, net (4 ) (2 )

Issuances of debt — 4

Repayments of debt (3 ) —

Excess tax benefits from share-based compensation 71 55

Dividends paid (973 ) (914 )

Other 33 32

Net cash used in financing activities (1,953 ) (2,565 )

Net decrease in cash and cash equivalents (2,339 ) (2,671 )

Cash and cash equivalents, beginning of period 6,726 7,925

Cash and cash equivalents, end of period $ 4,387 $ 5,254

Supplemental cash flow information:

Cash paid for interest $ 263 $ 221

Cash paid for income taxes, net $ 694 $ 803

CASH AND CASH EQUIVALENTS AND INVESTMENTS

(In millions)

October 25,
2014 July 26,
2014

Cash and cash equivalents and investments:

Cash and cash equivalents $ 4,387 $ 6,726

Fixed income securities 45,923 43,396

Publicly traded equity securities 1,797 1,952

Total $ 52,107 $ 52,074

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES

TO FREE CASH FLOW (NON-GAAP)

(In millions)

Three Months Ended

October 25,
2014 July 26,
2014 October 26,
2013

Net cash provided by operating activities $ 2,491 $ 3,612 $ 2,649

Acquisition of property and equipment (285 ) (325 ) (315 )

Free cash flow $ 2,206 $ 3,287 $ 2,334

DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK

(In millions, except per-share amounts)

DIVIDENDS STOCK REPURCHASE PROGRAM TOTAL

Quarter Ended Per Share Amount Shares Weighted-Average Price per Share Amount Amount

Fiscal 2015

October 25, 2014 $ 0.19 $ 973 41 $ 24.58 $ 1,013 $ 1,986

Fiscal 2014

July 26, 2014 $ 0.19 $ 974 61 $ 25.11 $ 1,514 $ 2,488

April 26, 2014 0.19 974 90 $ 22.24 2,005 2,979

January 25, 2014 0.17 896 185 $ 21.73 4,020 4,916

October 26, 2013 0.17 914 84 $ 23.65 2,000 2,914

Total $ 0.72 $ 3,758 420 $ 22.71 $ 9,539 $ 13,297

ACCOUNTS RECEIVABLE AND DSO

(In millions, except DSO)

October 25,
2014 July 26,
2014 October 26,
2013

Accounts receivable, net $ 4,375 $ 5,157 $ 5,188

Days sales outstanding in accounts receivable (DSO) 33 38 39

INVENTORIES

(In millions)

October 25,
2014 July 26,
2014 October 26,
2013

Inventories:

Raw materials $ 173 $ 77 $ 80

Work in process 3 5 7

Finished goods:

Distributor inventory and deferred cost of sales 654 595 619

Manufactured finished goods 535 606 464

Total finished goods 1,189 1,201 1,083

Service-related spares 275 273 257

Demonstration systems 36 35 39

Total $ 1,676 $ 1,591 $ 1,466

INVENTORY TURNS AND RECONCILIATION OF GAAP TO NON-GAAP

COST OF SALES USED IN INVENTORY TURNS

(In millions, except annualized inventory turns)

Three Months Ended

October 25,
2014 July 26,
2014 October 26,
2013

Annualized inventory turns – GAAP 12.0 12.7 12.7

Cost of sales adjustments (1.0 ) (0.6 ) (0.6 )

Annualized inventory turns – non-GAAP 11.0 12.1 12.1

GAAP cost of sales $ 4,912 $ 4,952 $ 4,678

Cost of sales adjustments:

Share-based compensation expense (48 ) (49 ) (43 )

Amortization of acquisition-related intangible assets (181 ) (180 ) (167 )

Acquisition-related/divestiture costs — (1 ) —

Patent portfolio charge (188 ) — —

Non-GAAP cost of sales $ 4,495 $ 4,722 $ 4,468

DEFERRED REVENUE

(In millions)

October 25,
2014 July 26,
2014 October 26,
2013

Deferred revenue:

Service $ 9,029 $ 9,640 $ 8,896

Product:

Unrecognized revenue on product shipments and other deferred revenue 4,056 3,924 3,628

Cash receipts related to unrecognized revenue from two-tier distributors 659 578 683

Total product deferred revenue 4,715 4,502 4,311

Total $ 13,744 $ 14,142 $ 13,207

Reported as:

Current $ 9,449 $ 9,478 $ 9,212

Noncurrent 4,295 4,664 3,995

Total $ 13,744 $ 14,142 $ 13,207

SUMMARY OF SHARE-BASED COMPENSATION EXPENSE

(In millions)

Three Months Ended

October 25,
2014 October 26,
2013

Cost of sales – product $ 11 $ 10

Cost of sales – service 37 33

Share-based compensation expense in cost of sales 48 43

Research and development 119 92

Sales and marketing 147 123

General and administrative 59 54

Restructuring and other charges (4 ) (3 )

Share-based compensation expense in operating expenses 321 266

Total share-based compensation expense $ 369 $ 309

Income tax benefit for share-based compensation $ 94 $ 78

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November 12, 2014

AOL Earnings Released, Revenue Up 12%

AOL just released its Q3 earnings report with total revenue growth of 12% year-over-year thanks to strong global advertising growth. This was the company’s seventh consecutive quarter of revenue growth.

It grew its domestic multi-platform unique visitors by 14% from the same period last year, which is the fastest rate of grwoth among the top five internet properties, AOL claims.

Programmatic revenue grew to 37% of non-search ad revenue from just 12% the same time last year. Global ad revenue grew 18% thanks to strong pricing growth in display and third-party platform driven. AOL credits premium formats including video.

CEO Tim Armstrong said, “In Q3, AOL continued its strong growth in consumer traffic, revenue and profitability across its portfolio of assets. AOL is a leader in global content, video, mobile, and programmatic advertising and is positioned directly at the center of the most disruptive changes happening online and offline in culture and code.”

The company also announced a stock repurchase of a million shares.

Here’s the release in its entirety:

NEW YORK–(BUSINESS WIRE)–Nov. 6, 2014–

AOL Inc. (NYSE:AOL) released third quarter 2014 results today.

“In Q3, AOL continued its strong growth in consumer traffic, revenue and profitability across its portfolio of assets,” said Tim Armstrong, AOL Chairman and CEO. “AOL is a leader in global content, video, mobile, and programmatic advertising and is positioned directly at the center of the most disruptive changes happening online and offline in culture and code.”

Summary Results

In millions (except per share amounts)

Q3 2014 Q3 2013 Change

Revenues

Global advertising and other $ 473.4 $ 399.7 18%

AOL Properties Display 141.5 141.9 0%

AOL Properties Search 97.9 95.0 3%

Third Party Platform 215.1 149.1 44%

Other 18.9 13.7 38%

Subscription 153.4 161.6 -5%

Total revenues $ 626.8 $ 561.3 12%

Adjusted operating income before depreciation and amortization (Adjusted OIBDA) (1) $ 121.8 $ 119.8 2%

Operating income $ 48.0 $ 16.7 187%

Net income attributable to AOL Inc. $ 28.5 $ 2.0 1325%

Diluted EPS $ 0.35 $ 0.02 1650%

Adjusted Diluted EPS (1) $ 0.52 $ 0.56 -7%

Cash provided by operating activities $ 137.8 $ 98.9 39%

Free Cash Flow (1) $ 101.2 $ 64.6 57%

(1) See Page 8 for a reconciliation of Adjusted OIBDA, Adjusted Diluted EPS and Free Cash Flow to the GAAP financial measures we consider most comparable.

Q3 Consolidated AOL Revenue Trends:

Total revenue grew 12% year-over-year on strong growth in global advertising and other revenue.

Global advertising and other revenue grew 18% year-over-year reflecting:

44% growth in Third Party Platform revenue, driven by growth in the sale of premium formats and by the inclusion of revenue from Adap.tv for a full quarter in 2014 versus approximately one month in 2013. Third Party Platform revenue grew approximately 22% excluding Adap.tv.

Flat AOL Properties display revenue due to the absence in Q3’14 of approximately $10 million in revenue from disposed or shuttered brands, including Patch. Excluding these impacts, display revenue grew 7% driven by improved pricing on AOL Properties.

3% growth in AOL Properties search revenue, driven by increased queries from search marketing-related efforts.

38% growth in other revenue, related to increased platform access and licensing fees.

Subscription revenue declined 5% year-over-year as 6% growth in average monthly subscription revenue per AOLsubscriber (ARPU) partially offset a 9% decline in subscribers. Domestic AOL subscriber monthly average churn improved sequentially to 1.4% in Q3 2014 and was flat to Q3 2013.

Q3 Consolidated AOL Profitability Trends:

Cost of revenues increased $61 million year-over-year, driven by a $65 million increase in TAC, partially offset by expense savings resulting from reduced headcount. TAC increases reflect the inclusion of Adap.tv, search marketing-related efforts and growth in Third Party Platform revenue.

General and administrative expenses grew $3 million year-over-year, due primarily to increased operating expenses associated with acquisitions made late 2013 and early 2014.

Adjusted OIBDA grew 2% year-over-year, driven primarily by total revenue growth. Year-over-year comparisons were negatively impacted by $5 million received in the prior year period related to the disposition of a legal claim. Excluding this impact, Adjusted OIBDA grew 6% year-over-year.

Diluted and Adjusted Diluted EPS were negatively impacted by increased amortization associated with acquisitions made late 2013 and early 2014 and increased interest expenses associated with our credit facility and convertible senior note offering during the quarter, which more than offset the benefit of a lower effective tax rate.

AOL Asset, Cash & Cash Flow Trends:

AOL had $458 million of cash and equivalents at September 30. During the quarter, AOL repaid $105 million of borrowings under its $250 million senior secured revolving credit facility. AOL had no outstanding borrowings at September 30 and has none to date. Additionally, on July 30, AOL completed the sale of its Dulles Technology Center (DTC) for approximately $33 million in cash.

On August 14, AOL issued $379.5 million aggregate principal amount of 0.75% convertible senior notes maturingSeptember 1, 2019. Net proceeds after expenses were approximately $369 million. AOL used a net $37 million of the net proceeds to pay the cost of the convertible note hedge and warrant transactions designed primarily to offset potential shareholder dilution.

Q3 cash provided by operating activities was $138 million and Free Cash Flow was $101 million, an increase of 39% and 57% year-over-year, respectively, reflecting the timing of working capital.

On July 28, AOL’s Board of Directors authorized a $150 million share repurchase program. On August 6, 2014 in connection with the convertible senior note offering, AOL repurchased approximately 1 million shares of common stock at an average price of $42.46, or approximately $40 million in aggregate, leaving $110 million available on AOL’s current authorization.

DISCUSSION OF SEGMENT RESULTS

Q3’14 Q3’13 Change

(In millions)

Revenues

Brand Group $ 187.3 $ 192.5 -3%

Membership Group 196.7 204.5 -4%

AOL Platforms 271.9 188.7 44%

Intersegment eliminations (29.1) (24.4) -19%

Total Revenues $ 626.8 $ 561.3 12%

Adjusted OIBDA

Brand Group $ 17.0 $ 10.9 56%

Membership Group 139.2 149.8 -7%

AOL Platforms (0.6) (7.1) 92%

Corporate & Other (33.8) (33.8) 0%

Total Adjusted OIBDA $ 121.8 $ 119.8 2%

Brand Group

Brand Group revenue declined year-over-year, impacted by the absence of display revenue from disposed or shuttered brands, including Patch. Excluding this impact, Brand Group display revenue grew 1%, driven by continued growth in inventory pricing.Brand Group search revenue grew 8% year-over-year, driven by increased queries from search marketing-related efforts.

Brand Group Adjusted OIBDA improved significantly year-over-year, due to general cost savings initiatives, including the savings associated with the disposal and shuttering of certain brands, including Patch, partially offset by increased TAC associated with search marketing-related efforts.

Membership Group

Membership Group revenue declines reflects a 5% year-over-year decline in subscription revenue and a decline in search revenue, offset in part by growth in display revenue on improved inventory pricing at AOL Mail. Subscription and search revenue declines reflect 9% fewer domestic AOL subscribers on 1.4% monthly average churn. Subscription revenue declines were partially offset by 6% growth in ARPU year-over-year, reflecting price increases associated with adding increased features, services and value to our subscribers’ packages.

Membership Group Adjusted OIBDA declines primarily reflect subscription revenue declines discussed above, partially offset by a decrease in costs related to fewer domestic AOL subscribers. Year-over-year comparisons were negatively impacted by $5 millionreceived in Q3 2013 related to the disposition of a legal claim. Excluding this impact, Membership Adjusted OIBDA declined 4% year-over-year.

AOL Platforms

AOL Platforms revenue increased 44% year-over-year, driven by significant growth in Third Party Platform revenue, and revenue from Adap.tv for a full quarter in 2014 as compared to approximately one month in 2013. Excluding Adap.tv, Third Party Platform revenue grew approximately 23% year-over-year, driven by growth in the sale of premium formats.

AOL Platforms Adjusted OIBDA improved significantly year-over-year, reflecting strong growth in revenue in the segment, partially offset by increased TAC and investments in our programmatic platforms and premium formats.

Tax

AOL had Q3 2014 pre-tax income of $42 million and income tax expense of $14 million, resulting in an effective tax rate of 34%. This compares to an effective tax rate of 90% for Q3 2013. The effective tax rate for Q3 2014 did not materially differ from the statutory U.S. federal income tax rate of 35% primarily due to additional deductions that produced a tax benefit in the quarter, which offset foreign losses that did not produce a tax benefit. The effective tax rate for Q3 2013 differed from the statutory U.S. federal income tax rate of 35% primarily due to the tax impact of the non-deductible goodwill impairment charge and the foreign losses that did not produce a tax benefit.

Cash Flow

Q3 cash provided by operating activities was $138 million and Free Cash Flow was $101 million, an increase of 39% and 57%, respectively, primarily reflecting the timing of working capital.

OPERATING METRICS

Q3 2014 Q3 2013 Y/Y Change Q2 2014 Q/Q Change

Subscriber Information

Domestic AOL subscribers (in thousands) (1) 2,274 2,508 -9% 2,338 -3%

ARPU (1) $ 21.35 $ 20.15 6% $ 20.86 2%

Domestic AOL subscriber monthly average churn (2) 1.4% 1.4% 0% 1.6% -13%

Unique Visitors (in millions) (3)

Domestic average monthly AOL multi-platform unique visitors 179 156 14% 171 5%

Domestic average monthly desktop unique visitors to AOL Properties 108 115 -7% 108 0%

(1) Domestic AOL subscribers include subscribers participating in introductory free-trial periods and subscribers that are paying no monthly fees or reduced monthly fees through member service and retention programs. Individuals who are only registered for our free offerings, including subscribers who have migrated from paid subscription plans, are not included in the AOL subscriber numbers presented above. Additionally, only those individuals whose subscription includes AOL-brand dial-up access service are included in the AOL subscriber numbers above. ARPU is calculated as domestic average monthly subscription revenue per AOL subscriber.

(2) Churn represents the percentage of AOL subscribers that are either terminated or cancel our services, factoring in new and reactivated subscribers. Monthly average churn is calculated as the monthly average number of terminations plus cancellations divided by the initial AOL subscriber base plus any new registrations and reactivations for the applicable period.

(3) See “Unique Visitor Metrics” on page 9 of this press release.

FINANCIAL STATEMENTS

AOL Inc.

Condensed Consolidated Statements of Operations

(In millions, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2014 2013 2014 2013

(unaudited) (unaudited)

Revenues:

Advertising and other $ 473.4 $ 399.7 $ 1,358.5 $ 1,147.5

Subscription 153.4 161.6 458.4 493.4

Total revenues 626.8 561.3 1,816.9 1,640.9

Costs of revenues 479.4 418.6 1,394.3 1,211.6

General and administrative 81.5 78.2 236.3 237.6

Amortization of intangible assets 16.9 11.1 48.6 29.7

Restructuring costs 1.2 19.0 15.7 28.1

Goodwill impairment charge – 17.5 – 17.5

(Gain) loss on disposal of assets, net (0.2) 0.2 (4.2) (2.1)

Operating income 48.0 16.7 126.2 118.5

Interest and other income (expense), net (5.7) (2.1) (7.0) (5.6)

Income before income taxes 42.3 14.6 119.2 112.9

Income tax provision 14.4 13.1 55.2 57.8

Net income $ 27.9 $ 1.5 $ 64.0 $ 55.1

Net (income) loss attributable to noncontrolling interests 0.6 0.5 2.0 1.3

Net income attributable to AOL Inc. $ 28.5 $ 2.0 $ 66.0 $ 56.4

Per share information attributable to AOL Inc. common stockholders:

Basic net income per common share $ 0.36 $ 0.03 $ 0.83 $ 0.73

Diluted net income per common share $ 0.35 $ 0.02 $ 0.79 $ 0.69

Shares used in computing basic income per common share 78.3 77.3 79.2 77.1

Shares used in computing diluted income per common share 82.2 81.2 83.3 81.4

Depreciation expense by function:

Costs of revenues $ 31.1 $ 29.8 $ 92.2 $ 90.1

General and administrative 2.4 2.2 8.4 7.3

Total depreciation expense $ 33.5 $ 32.0 $ 100.6 $ 97.4

Equity-based compensation by function:

Costs of revenues $ 15.1 $ 7.6 $ 34.8 $ 18.8

General and administrative 6.2 4.2 16.6 12.6

Total equity-based compensation $ 21.3 $ 11.8 $ 51.4 $ 31.4

Traffic Acquisition Costs (included in costs of revenues) $ 178.9 $ 114.0 $ 488.2 $ 307.9

Third Party Platform Traffic Acquisition Costs $ 143.5 $ 93.8 $ 386.7 $ 248.9

AOL Inc.

Condensed Consolidated Balance Sheets

(In millions, except per share amounts)

September 30, December 31,

2014 2013

Assets (unaudited)

Current assets:

Cash and equivalents $ 457.5 $ 207.3

Accounts receivable, net of allowances of $9.2 and $8.3, respectively 457.3 491.0

Prepaid expenses and other current assets 38.9 34.1

Deferred income taxes, net 24.2 30.7

Total current assets 977.9 763.1

Property and equipment, net 454.3 467.9

Goodwill 1,486.3 1,361.7

Intangible assets, net 228.0 208.4

Long-term deferred income taxes, net 76.6 110.6

Other long-term assets 95.4 71.7

Total assets $ 3,318.5 $ 2,983.4

Liabilities, Redeemable Noncontrolling Interest and Equity

Current liabilities:

Accounts payable $ 77.0 $ 101.0

Accrued compensation and benefits 96.5 127.0

Accrued expenses and other current liabilities 201.8 197.3

Deferred revenue 70.4 67.2

Current portion of obligations under capital leases 53.6 55.5

Total current liabilities 499.3 548.0

Convertible senior notes 303.1 –

Long-term portion of obligations under capital leases 82.3 56.2

Long-term deferred income taxes 3.7 4.4

Other long-term liabilities 104.5 97.6

Total liabilities 992.9 706.2

Redeemable noncontrolling interest 9.0 9.7

Equity:

Common stock, $0.01 par value, 115.2 million shares issued and 77.8 million

shares outstanding as of September 30, 2014 and 114.1 million shares issued

and 79.2 million shares outstanding as of December 31, 20130 1.2 1.1

Additional paid-in capital 3,676.8 3,592.7

Accumulated other comprehensive income (loss), net (293.8) (290.4)

Accumulated deficit (27.4) (93.6)

Treasury stock, at cost, 37.4 million shares as of September 30, 2014 and 34.9

million shares as of December 31, 2013 (1,041.5) (942.9)

Total stockholders’ equity 2,315.3 2,266.9

Noncontrolling interest 1.3 0.6

Total equity 2,316.6 2,267.5

Total liabilities, redeemable noncontrolling interest and equity $ 3,318.5 $ 2,983.4

AOL Inc.

Condensed Consolidated Statements of Cash Flows

(In millions)

Nine Months Ended September 30,

2014 2013

(unaudited)

Operating Activities

Net income $ 64.0 $ 55.1

Adjustments for non-cash and non-operating items:

Depreciation and amortization 149.2 127.1

Asset impairments and write-offs 12.3 30.4

(Gain) loss on disposal of assets, net (4.2) (1.1)

Accretion of convertible notes discount 1.6 –

Amortization of debt issuance costs 0.7 0.2

Equity-based compensation 51.4 31.4

Deferred income taxes 4.7 31.5

Other non-cash adjustments 2.8 4.5

Changes in operating assets and liabilities, net of acquisitions 4.7 (50.2)

Cash provided by operating activities 287.2 228.9

Investing Activities

Investments and acquisitions, net of cash acquired (192.6) (336.9)

Proceeds from disposal of assets, net 38.2 1.1

Capital expenditures and product development costs (55.7) (52.7)

Cash used by investing activities (210.1) (388.5)

Financing Activities

Borrowings under the credit facility agreement 105.0 –

Repayments under the credit facility agreement (105.0) –

Repurchase of common stock (98.6) (102.2)

Proceeds from issuance of convertible notes 379.5 –

Payment of issuance costs (10.4) (3.1)

Payments for note hedges (70.1) –

Proceeds from issuance of warrants 33.5 –

Principal payments on capital leases (53.3) (44.5)

Tax withholdings related to net share settlements of restricted stock units (22.5) (13.3)

Proceeds from exercise of stock options 10.2 22.7

Other financing activities 5.9 3.9

Cash provided (used) by financing activities 174.2 (136.5)

Effect of exchange rate changes on cash and equivalents (1.1) (2.3)

Increase (decrease) in cash and equivalents 250.2 (298.4)

Cash and equivalents at beginning of period 207.3 466.6

Cash and equivalents at end of period $ 457.5 $ 168.2

SUPPLEMENTAL INFORMATION – UNAUDITED

AOL Inc.

Reconciliation of Adjusted Diluted EPS to Net Income Attributable to AOL Inc.

(In millions, except per share amounts)

Three Months Ended
September 30, Nine Months Ended
September 30,

2014 2013 2014 2013

Net income attributable to AOL Inc. $ 28.5 $ 2.0 $ 66.0 $ 56.4

Add (less) items impacting comparability of net income:

Restructuring costs 1.2 19.0 15.7 28.1

Equity-based compensation 21.3 11.8 51.4 31.4

Asset impairments and write-offs 1.1 29.0 12.3 30.4

(Gain) loss on disposal of assets, net (0.2) 0.2 (4.2) (2.1)

Income tax impact of items above (1) (9.3) (16.7) (32.2) (26.9)

Adjusted net income attributable to AOL Inc. $ 42.6 $ 45.3 $ 109.0 $ 117.3

Shares used in computing diluted EPS 82.2 81.2 83.3 81.4

Adjusted Diluted EPS $ 0.52 $ 0.56 $ 1.31 $ 1.44

Marginal tax rate (2) 39.8% 39.5% 39.8% 39.5%

(1) Income tax impact of restructuring charges, equity-based compensation and asset impairments and write-offs are calculated by applying the marginal tax rate to deductible items. The income tax impact of gain (loss) on disposal of assets is calculated by using the actual tax expense for the transactions. The goodwill impairment charge of $17.5 million recorded in the third quarter of 2013 is not deductible for income tax purposes.

(2) For the three and nine months ended September 30, 2014, the marginal tax rate used was AOL’s 2014 projected marginal annual effective tax rate. For the three and nine months ended September 30, 2013, the marginal tax rate used was AOL’s 2013 projected marginal annual effective tax rate as of September 30, 2013.

AOL Inc.

Reconciliation of Adjusted OIBDA to Operating Income and Free Cash Flow to Cash Provided by Operating Activities

(In millions)

Three Months Ended September 30, Nine Months Ended September 30,

2014 2013 2014 2013

Operating income $ 48.0 $ 16.7 $ 126.2 $ 118.5

Add: Depreciation 33.5 32.0 100.6 97.4

Add: Amortization of intangible assets 16.9 11.1 48.6 29.7

Add: Restructuring costs 1.2 19.0 15.7 28.1

Add: Equity-based compensation 21.3 11.8 51.4 31.4

Add: Asset impairments and write-offs 1.1 29.0 12.3 30.4

Add: Losses/(gains) on disposal of assets, net (0.2) 0.2 (4.2) (2.1)

Adjusted OIBDA $ 121.8 $ 119.8 $ 350.6 $ 333.4

Cash provided by operating activities $ 137.8 $ 98.9 $ 287.2 $ 228.9

Less: Capital expenditures and product development costs 19.4 19.7 55.7 52.7

Less: Principal payments on capital leases 17.2 14.6 53.3 44.5

Free Cash Flow $ 101.2 $ 64.6 $ 178.2 $ 131.7

Note Regarding Non-GAAP Financial Measures

This press release and its attachments include the financial measures Adjusted OIBDA, Adjusted Diluted EPS and Free Cash Flow, all of which are defined as non-GAAP financial measures by the Securities and Exchange Commission (SEC). These measures may be different than similarly-titled non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). Explanations of our non-GAAP financial measures are as follows:

Adjusted OIBDA. We define Adjusted OIBDA as operating income before depreciation and amortization excluding the impact of restructuring costs, non-cash equity-based compensation, gains and losses on all disposals of assets, non-cash asset impairments and write-offs and special items. We consider Adjusted OIBDA to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of non-cash items such as depreciation of tangible assets, amortization of intangible assets that were primarily recognized in business combinations, asset impairments and write-offs, as well as the effect of restructurings, gains and losses on asset sales and special items, which we do not believe are indicative of our core operating performance. We exclude the impacts of equity-based compensation to allow us to be more closely aligned with the industry and analyst community. A limitation of this measure, however, is that it does not reflect the periodic costs of capitalized tangible and intangible assets used in generating revenues in our business or the current or future expected cash expenditures for restructuring costs. The Adjusted OIBDA measure also does not include equity-based compensation, which is and will remain a key element of our overall long-term compensation package. Moreover, the Adjusted OIBDA measures do not reflect gains and losses on asset sales, impairment charges and write-offs related to goodwill, intangible assets and fixed assets or special items which impact our operating performance. We evaluate the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budgets, investment spending levels and return on capital.

Adjusted Diluted EPS. We define Adjusted Diluted EPS as diluted net income per common share excluding the net-of-tax impact of restructuring costs, non-cash equity-based compensation, gains and losses on all disposals of assets, non-cash asset impairments and write-offs and special items. We consider Adjusted Diluted EPS to be useful to management and investors as a profitability measure to allow comparison of our results to historical periods and forecasting of our results for future periods. A limitation of Adjusted Diluted EPS is that it does not include all items that impact our net income and diluted net income per common share for the period. We compensate for this limitation by also relying on diluted net income per common share as a comparable GAAP financial measure.

Free Cash Flow. We define Free Cash Flow as cash provided by operating activities, less capital expenditures, product development costs and principal payments on capital leases. We consider Free Cash Flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after capital expenditures, capitalized product development costs and principal payments on capital leases, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of Free Cash Flow also facilitates management’s comparisons of our operating results to competitors’ operating results. A limitation on the use of this metric is that Free Cash Flow does not represent the total increase or decrease in cash for the period because it excludes certain non-operating cash flows.

Unique Visitor Metrics

We utilize unique visitor numbers to evaluate our performance, as unique visitor numbers provide an indication of our consumer reach. Although our consumer reach does not correlate directly to advertising revenue, we believe that our ability to broadly reach diverse demographic and geographic audiences is attractive to brand advertisers seeking to promote their brands to a variety of consumers without having to partner with multiple content providers. AOL multi-platform unique visitor metrics represent a measure of AOL’s unduplicated audience across multiple digital platforms (desktop computers, smartphones and tablets). AOL multi-platform unique visitors represent the estimated number of individuals who visited any content of a website or application owned by AOL or for which the traffic has been assigned to AOL by the owner during the applicable measurement period. Additionally, AOL multi-platform unique visitor metrics also include visitors to AOL’s syndicated video content distributed on third party sites. Desktop unique visitors to AOL Properties represent the estimated number of individuals who visited any content of a website or application owned by AOL or for which the traffic has been assigned to AOL by the owner during the applicable measurement period via a desktop computer. The source for our unique visitor information is a third party (comScore Media Metrix).

Cautionary Statement Concerning Forward-Looking Statements

This press release and our conference call at 8:00 a.m. Eastern Time today may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding business strategies, market potential, future financial and operational performance and other matters. Words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “will,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances. Except as required by law, we are under no obligation to, and expressly disclaim any obligation to, update or alter any forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. Various factors could adversely affect our operations, business or financial results in the future and cause our actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in the “Risk Factors” sections contained in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “Annual Report”) and our Quarterly Report on Form 10-Q for the three months ended September 30, 2014 (“Quarterly Report”), filed with theSecurities and Exchange Commission. In addition, we operate a web services company in a highly competitive, rapidly changing and consumer- and technology-driven industry. This industry is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, the continued ability to protect intellectual property rights. Our actual results could differ materially from management’s expectations because of changes in such factors. Achieving our business and financial objectives, including improved financial results and maintenance of a strong balance sheet and liquidity position, could be adversely affected by the factors discussed or referenced under the “Risk Factors” sections contained in the Annual Report and Quarterly Report as well as, among other things: 1) changes in our plans, strategies and intentions; 2) stock price volatility; 3) future borrowing and restrictive covenants under the revolving credit facility; 4) the impact of the convertible senior notes and the related hedge and warrant transactions; 5) the impact of significant acquisitions, dispositions and other similar transactions; 6) our ability to attract and retain key employees; 7) any negative unintended consequences of cost reductions, restructuring actions or similar efforts, including with respect to any associated savings, charges or other amounts; 8) adoption of new products and services; 9) our ability to attract and retain unique visitors to our properties; 10) asset impairments; and 11) the impact of “cyber-attacks.”

About AOL

AOL Inc. (NYSE:AOL) is a brand company, committed to continuously innovating, growing, and investing in brands and experiences that inform, entertain, and connect the world. The home of a world-class collection of premium brands, AOL creates original content that engages audiences on a local and global scale. We help marketers connect with these audiences through effective and engaging digital advertising solutions.

From time to time, we post information about AOL on our investor relations website (http://ir.aol.com) and our official corporate blog (http://blog.aol.com). Follow us on Twitter @AOL_Inc.

Webcast and Conference Call Information

AOL Inc. will host a conference call to discuss third quarter 2014 financial results on Thursday, November 6, 2014, at 8:00 am ET. To access the call, parties in the United States and Canada should call toll-free (877) 415.3181 and other international parties should call (857) 244.7324. Participants should reference ‘AOL Call’ when dialing into the live call. Additionally, a live webcast of the conference call, together with supplemental financial information, can be accessed through the Company’s Investor Relations website at http://ir.aol.com. In addition, an archive of the webcast can be accessed through the link above for one year following the conference call, and an audio replay of the call will be available for two weeks following the conference call by calling (888) 286.8010 and other international parties should call (617) 801.6888. The access code for the replay is 53719765.

Source: AOL Inc.

Image via Wikimedia Commons

November 6, 2014


AMAZON.COM, INC.
Consolidated Statements of Cash Flows
(in millions)
(unaudited)

	Three Months Ended March 31,						Twelve Months Ended March 31,
	2015			2014			2015			2014
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	$	14,557		$	8,658		$	5,074		$	4,481
OPERATING ACTIVITIES:
Net income (loss)	(57		)	108			(405		)	299
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation of property and equipment, including internal-use software and website development, and other amortization, including capitalized content costs	1,426			1,010			5,162			3,563
Stock-based compensation	407			321			1,582			1,226
Other operating expense (income), net	44			35			139			117
Losses (gains) on sales of marketable securities, net	1			—			(3		)	2
Other expense (income), net	91			(50		)	203			48
Deferred income taxes	(2		)	(185		)	(136		)	(261		)
Excess tax benefits from stock-based compensation	(22		)	(121		)	94			(199		)
Changes in operating assets and liabilities:
Inventories	721			699			(1,172		)	(1,245		)
Accounts receivable, net and other	441			727			(1,324		)	(849		)
Accounts payable	(4,249		)	(4,675		)	2,184			1,400
Accrued expenses and other	(940		)	(731		)	500			708
Additions to unearned revenue	1,803			1,092			5,144			3,100
Amortization of previously unearned revenue	(1,163		)	(732		)	(4,123		)	(2,564		)
Net cash provided by (used in) operating activities	(1,499		)	(2,502		)	7,845			5,345
INVESTING ACTIVITIES:
Purchases of property and equipment, including internal-use software and website development	(871		)	(1,080		)	(4,684		)	(3,854		)
Acquisitions, net of cash acquired, and other	(365		)	—			(1,345		)	(208		)
Sales and maturities of marketable securities	375			593			3,131			2,299
Purchases of marketable securities	(986		)	(437		)	(3,091		)	(2,487		)
Net cash provided by (used in) investing activities	(1,847		)	(924		)	(5,989		)	(4,250		)
FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation	22			121			(94		)	199
Proceeds from long-term debt	183			65			6,478			426
Repayments of long-term debt	(316		)	(70		)	(760		)	(272		)
Principal repayments of capital lease obligations	(502		)	(249		)	(1,537		)	(863		)
Principal repayments of finance lease obligations	(39		)	(42		)	(132		)	(47		)
Net cash provided by (used in) financing activities	(652		)	(175		)	3,955			(557		)
Foreign-currency effect on cash and cash equivalents	(322		)	17			(648		)	55
Net increase (decrease) in cash and cash equivalents	(4,320		)	(3,584		)	5,163			593
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	10,237		$	5,074		$	10,237		$	5,074
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest on long-term debt	$	17		$	18		$	90		$	102
Cash paid for income taxes (net of refunds)	55			38			194			121
Property and equipment acquired under capital leases	954			716			4,246			2,243
Property and equipment acquired under build-to-suit leases	103			126			897			852


AMAZON.COM, INC.
Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)

	Three Months Ended March 31,
	2015			2014
Net product sales	$	17,084		$	15,705
Net service sales	5,633			4,036
Total net sales	22,717			19,741
Operating expenses (1):
Cost of sales	15,395			14,055
Fulfillment	2,759			2,317
Marketing	1,083			870
Technology and content	2,754			1,991
General and administrative	427			327
Other operating expense (income), net	44			35
Total operating expenses	22,462			19,595
Income (loss) from operations	255			146
Interest income	11			11
Interest expense	(115		)	(42		)
Other income (expense), net	(130		)	5
Total non-operating income (expense)	(234		)	(26		)
Income (loss) before income taxes	21			120
Provision for income taxes	(71		)	(73		)
Equity-method investment activity, net of tax	(7		)	61
Net income (loss)	$	(57	)	$	108
Basic earnings per share	$	(0.12	)	$	0.23
Diluted earnings per share	$	(0.12	)	$	0.23
Weighted average shares used in computation of earnings per share:
Basic	465			460
Diluted	465			468
_____________
(1) Includes stock-based compensation as follows:
Fulfillment	$	90		$	81
Marketing	35			27
Technology and content	233			169
General and administrative	49			44


AMAZON.COM, INC.
Consolidated Statements of Comprehensive Income (Loss)
(in millions)
(unaudited)

	Three Months Ended March 31,
	2015			2014
Net income (loss)	$	(57	)	$	108
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $(1) and $0	(243		)	27
Net change in unrealized gains on available-for-sale securities:
Unrealized gains, net of tax of $0 and $(1)	1			1
Reclassification adjustment for losses included in “Other income (expense), net,” net of tax of $0 and $0	1			—
Net unrealized gains on available-for-sale securities	2			1
Total other comprehensive income (loss)	(241		)	28
Comprehensive income (loss)	$	(298	)	$	136


AMAZON.COM, INC.
Segment Information
(in millions)
(unaudited)

	Three Months Ended March 31,
	2015			2014
North America
Net sales	$	13,406		$	10,808
Segment operating expenses (1)	12,889			10,518
Segment operating income (loss)	$	517		$	290
International
Net sales	$	7,745		$	7,883
Segment operating expenses (1)	7,821			7,916
Segment operating income (loss)	$	(76	)	$	(33	)
AWS
Net sales	$	1,566		$	1,050
Segment operating expenses (1)	1,301			805
Segment operating income (loss)	$	265		$	245
Consolidated
Net sales	$	22,717		$	19,741
Segment operating expenses (1)	22,011			19,239
Segment operating income (loss)	706			502
Stock-based compensation	(407		)	(321		)
Other operating income (expense), net	(44		)	(35		)
Income (loss) from operations	255			146
Total non-operating income (expense)	(234		)	(26		)
Provision for income taxes	(71		)	(73		)
Equity-method investment activity, net of tax	(7		)	61
Net income (loss)	$	(57	)	$	108
Segment Highlights:
Y/Y net sales growth:
North America	24		%	23		%
International	(2		)	18
AWS	49			69
Consolidated	15			23
Net sales mix:
North America	59		%	55		%
International	34			40
AWS	7			5
Consolidated	100		%	100		%

______________________________ (1) Excludes stock-based compensation and “Other operating expense (income), net,” which are not allocated to segments.


AMAZON.COM, INC.
Supplemental Net Sales Information
(in millions)
(unaudited)

	Three Months Ended March 31,
	2015			2014
Net Sales:
North America
Media	$	2,969		$	2,825
Electronics and other general merchandise	10,250			7,829
Other (1)	187			154
Total North America	$	13,406		$	10,808
International
Media	$	2,320		$	2,642
Electronics and other general merchandise	5,378			5,188
Other (1)	47			53
Total International	$	7,745		$	7,883

Year-over-year Percentage Growth:
North America
Media	5		%	12		%
Electronics and other general merchandise	31			28
Other	22			18
Total North America	24			23
International
Media	(12		)%	4		%
Electronics and other general merchandise	4			27
Other	(12		)	13
Total International	(2		)	18
Year-over-year Percentage Growth, excluding the effect of foreign exchange rates:
North America
Media	5		%	13		%
Electronics and other general merchandise	31			28
Other	22			19
Total North America	24			23
International
Media	2		%	4		%
Electronics and other general merchandise	21			26
Other	2			11
Total International	14			18

______________________________ (1) Includes sales from non-retail activities, such as certain advertising services and our co-branded credit card agreements.


AMAZON.COM, INC.
Consolidated Balance Sheets
(in millions, except per share data)

	March 31, 2015			December 31, 2014
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	10,237		$	14,557
Marketable securities	3,544			2,859
Inventories	7,369			8,299
Accounts receivable, net and other	4,772			5,612
Total current assets	25,922			31,327
Property and equipment, net	17,736			16,967
Goodwill	3,491			3,319
Other assets	2,926			2,892
Total assets	$	50,075		$	54,505
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,917		$	16,459
Accrued expenses and other	8,840			9,807
Unearned revenue	2,420			1,823
Total current liabilities	23,177			28,089
Long-term debt	8,257			8,265
Other long-term liabilities	7,768			7,410
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value:
Authorized shares — 500
Issued and outstanding shares — none	—			—
Common stock, $0.01 par value:
Authorized shares — 5,000
Issued shares — 489 and 488
Outstanding shares — 466 and 465	5			5
Treasury stock, at cost	(1,837		)	(1,837		)
Additional paid-in capital	11,565			11,135
Accumulated other comprehensive loss	(752		)	(511		)
Retained earnings	1,892			1,949
Total stockholders’ equity	10,873			10,741
Total liabilities and stockholders’ equity	$	50,075		$	54,505


AMAZON.COM, INC.
Supplemental Financial Information and Business Metrics
(in millions, except per share data)
(unaudited)

	Q1 2014			Q2 2014			Q3 2014			Q4 2014			Q1 2015			Y/Y % Change
Cash Flows and Shares
Operating cash flow — trailing twelve months (TTM)	$	5,345		$	5,327		$	5,705		$	6,842		$	7,845		47	%
Purchases of property and equipment (incl. internal-use software & website development) — TTM	$	3,854		$	4,288		$	4,628		$	4,893		$	4,684		22	%
Principal repayments of capital lease obligations — TTM	$	863		$	969		$	1,103		$	1,285		$	1,537		78	%
Principal repayments of finance lease obligations — TTM	$	47		$	60		$	73		$	135		$	132		178	%
Property and equipment acquired under capital leases — TTM	$	2,243		$	2,716		$	3,347		$	4,008		$	4,246		89	%
Free cash flow — TTM (1)	$	1,491		$	1,039		$	1,077		$	1,949		$	3,161		112	%
Free cash flow — TTM Y/Y growth (decline)	744		%	292		%	178		%	(4		)%	112		%	N/A
Invested capital (2)	$	16,681		$	17,743		$	18,715		$	21,021		$	23,090		38	%
Return on invested capital (3)	9		%	6		%	6		%	9		%	14		%	N/A
Free cash flow less lease principal repayments — TTM (4)	$	581		$	10		$	(99	)	$	529		$	1,492		157	%
Free cash flow less finance principal lease repayments and capital acquired under capital leases — TTM (5)	$	(799	)	$	(1,737	)	$	(2,343	)	$	(2,194	)	$	(1,217	)	52	%
Common shares and stock-based awards outstanding	476			480			481			483			483			2	%
Common shares outstanding	460			462			463			465			466			1	%
Stock awards outstanding	16			18			18			18			17			11	%
Stock awards outstanding — % of common shares outstanding	3.5		%	3.9		%	3.9		%	3.8		%	3.8		%	N/A
Results of Operations
Worldwide (WW) net sales	$	19,741		$	19,340		$	20,579		$	29,328		$	22,717		15	%
WW net sales — Y/Y growth, excluding F/X	23		%	22		%	20		%	18		%	22		%	N/A
WW net sales — TTM	$	78,124		$	81,759		$	85,246		$	88,988		$	91,963		18	%
WW net sales — TTM Y/Y growth, excluding F/X	24		%	23		%	22		%	20		%	20		%	N/A
Operating income (loss)	$	146		$	(15	)	$	(544	)	$	591		$	255		74	%
Operating income/loss — Y/Y growth (decline), excluding F/X	(29		)%	(158		)%	N/A			22		%	90		%	N/A
Operating margin — % of WW net sales	0.7		%	(0.1		)%	(2.6		)%	2.0		%	1.1		%	N/A
Operating income — TTM	$	710		$	617		$	97		$	178		$	287		(60	)%
Operating income — TTM Y/Y growth (decline), excluding F/X	7		%	(11		)%	(94		)%	(79		)%	(56		)%	N/A
Operating margin — TTM % of WW net sales	0.9		%	0.8		%	0.1		%	0.2		%	0.3		%	N/A
Net income (loss)	$	108		$	(126	)	$	(437	)	$	214		$	(57	)	(153	)%
Net income (loss) per diluted share	$	0.23		$	(0.27	)	$	(0.95	)	$	0.45		$	(0.12	)	(152	)%
Net income (loss) — TTM	$	299		$	181		$	(216	)	$	(241	)	$	(405	)	(236	)%
Net income (loss) per diluted share — TTM	$	0.64		$	0.39		$	(0.47	)	$	(0.52	)	$	(0.88	)	(234	)%

______________________________
(1)		“Free cash flow” is defined as net cash provided by operating activities less cash expenditures for purchases of property and equipment, including internal-use software and website development.
(2)		Average Total Assets minus Current Liabilities (excluding current portion of Long-Term Debt) over five quarter ends.
(3)		TTM Free Cash Flow divided by Invested Capital.
(4)		“Free cash flow less lease principal repayments” is defined as net cash provided by operating activities, less (i) purchases of property and equipment, including internal-use software and website development, (ii) principal repayments of capital lease obligations, and (iii) principal repayments of finance lease obligations. Free cash flow less lease principal repayments approximates the actual payments of cash for our capital and finance leases.
(5)		“Free cash flow less finance principal lease repayments and capital acquired under capital leases” is defined as net cash provided by operating activities, less (i) purchases of property and equipment, including internal-use software and website development, (ii) principal repayments of finance lease obligations, and (iii) property and equipment acquired under capital leases. In this measure, property and equipment acquired under capital leases is reflected as if these assets had been purchased for cash, which is not the case as these assets have been leased.

______________________________
(6)		Represents cost of sales, fulfillment, marketing, technology and content, and general and administrative operating expenses, excluding stock-based compensation.


AMAZON.COM, INC.
Supplemental Financial Information and Business Metrics
(in millions, except inventory turnover, accounts payable days and employee data)
(unaudited)

	Q1 2014			Q2 2014			Q3 2014			Q4 2014			Q1 2015			Y/Y % Change
Supplemental
Supplemental North America Segment Net Sales:
Media	$	2,825		$	2,464		$	2,734		$	3,544		$	2,969		5	%
Media — Y/Y growth, excluding F/X	13		%	14		%	5		%	1		%	5		%	N/A
Media — TTM	$	11,121		$	11,411		$	11,536		$	11,567		$	11,711		5	%
Electronics and other general merchandise	$	7,829		$	8,366		$	8,793		$	13,529		$	10,250		31	%
Electronics and other general merchandise — Y/Y growth, excluding F/X	28		%	29		%	31		%	27		%	31		%	N/A
Electronics and other general merchandise — TTM	$	31,686		$	33,575		$	35,636		$	38,517		$	40,938		29	%
Electronics and other general merchandise — TTM % of North America net sales	73		%	74		%	74		%	76		%	77		%	N/A
Other	$	154		$	164		$	172		$	260		$	187		22	%
Supplemental International Segment Net Sales:
Media	$	2,642		$	2,380		$	2,510		$	3,406		$	2,320		(12	)%
Media — Y/Y growth, excluding F/X	4		%	4		%	3		%	(1		)%	2		%	N/A
Media — TTM	$	11,004		$	11,160		$	11,246		$	10,938		$	10,615		(4	)%
Electronics and other general merchandise	$	5,188		$	4,912		$	5,160		$	7,109		$	5,378		4	%
Electronics and other general merchandise — Y/Y growth, excluding F/X	26		%	20		%	19		%	19		%	21		%	N/A
Electronics and other general merchandise — TTM	$	19,919		$	20,894		$	21,737		$	22,369		$	22,559		13	%
Electronics and other general merchandise — TTM % of International net sales	64		%	65		%	65		%	67		%	68		%	N/A
Other	$	53		$	49		$	41		$	60		$	47		(12	)%
Balance Sheet
Cash and marketable securities	$	8,666		$	7,986		$	6,883		$	17,416		$	13,781		59	%
Inventory, net — ending	$	6,716		$	6,644		$	7,316		$	8,299		$	7,369		10	%
Inventory turnover, average — TTM	9.1			9.1			8.9			8.6			8.8			(3	)%
Property and equipment, net	$	12,267		$	14,089		$	15,702		$	16,967		$	17,736		45	%
Accounts payable — ending	$	10,590		$	10,457		$	11,811		$	16,459		$	11,917		13	%
Accounts payable days — ending	68			71			74			73			70			3	%
Other
WW shipping revenue	$	849		$	889		$	1,048		$	1,701		$	1,299		53	%
WW shipping costs	$	1,829		$	1,812		$	2,020		$	3,049		$	2,309		26	%
WW net shipping costs	$	980		$	923		$	972		$	1,348		$	1,010		3	%
WW net shipping costs — % of net sales (7)	5.2		%	5.0		%	5.0		%	4.8		%	4.8		%	N/A
Employees (full-time and part-time; excludes contractors & temporary personnel)	124,600			132,600			149,500			154,100			165,000			32	%

______________________________ (7) Includes North America and International segment net sales.


AMAZON.COM, INC.
Supplemental Segment Financial Information

Two years of historical financial information on reportable segments and reconciliation to consolidated net income (loss) using the new segment presentation are as follows (in millions):

	Year Ended			Three Months Ended												Year Ended
	December 31, 2014			December 31, 2014			September 30, 2014			June 30, 2014			March 31, 2014			December 31, 2013
North America
Net sales	$	50,834		$	17,333		$	11,699		$	10,994		$	10,808		$	41,410
Segment operating expenses (1)	49,542			16,600			11,759			10,665			10,518			40,244
Segment operating income (loss)	$	1,292		$	733		$	(60	)	$	329		$	290		$	1,166
International
Net sales	$	33,510		$	10,575		$	7,711		$	7,341		$	7,883		$	29,934
Segment operating expenses (1)	33,654			10,510			7,885			7,343			7,916			29,780
Segment operating income (loss)	$	(144	)	$	65		$	(174	)	$	(2	)	$	(33	)	$	154
AWS
Net sales	$	4,644		$	1,420		$	1,169		$	1,005		$	1,050		$	3,108
Segment operating expenses (1)	3,984			1,180			1,071			928			805			2,435
Segment operating income	$	660		$	240		$	98		$	77		$	245		$	673
Consolidated
Net sales	$	88,988		$	29,328		$	20,579		$	19,340		$	19,741		$	74,452
Segment operating expenses (1)	87,180			28,290			20,715			18,936			19,239			72,459
Segment operating income (loss)	1,808			1,038			(136		)	404			502			1,993
Stock-based compensation	(1,497		)	(408		)	(377		)	(391		)	(321		)	(1,134		)
Other operating income (expense), net	(133		)	(39		)	(31		)	(28		)	(35		)	(114		)
Income (loss) from operations	178			591			(544		)	(15		)	146			745
Total non-operating income (expense)	(289		)	(162		)	(90		)	(12		)	(26		)	(239		)
Benefit (provision) for income taxes	(167		)	(205		)	205			(94		)	(73		)	(161		)
Equity-method investment activity, net of tax	37			(10		)	(8		)	(5		)	61			(71		)
Net income (loss)	$	(241	)	$	214		$	(437	)	$	(126	)	$	108		$	274
Segment Highlights:
Y/Y net sales growth:
North America	23		%	21		%	23		%	25		%	23		%	26		%
International	12			3			14			18			18			14
AWS	49			47			43			43			69			69
Consolidated	20			15			20			23			23			22
Net sales mix:
North America	57		%	59		%	57		%	57		%	55		%	56		%
International	38			36			37			38			40			40
AWS	5			5			6			5			5			4
Consolidated	100		%	100		%	100		%	100		%	100		%	100		%

_________________ (1) Excludes stock-based compensation and “Other operating expense (income), net” which are not allocated to segments.


AMAZON.COM, INC.
Supplemental Segment Financial Information

Segment Assets

Total segment assets exclude corporate assets, such as cash and cash equivalents, marketable securities, other long-term investments, corporate facilities, goodwill and other acquired intangible assets, capitalized internal-use software and website development costs, and tax assets. Technology infrastructure assets are allocated among the segments based on usage, with the majority allocated to the AWS segment. Total segment assets reconciled to consolidated amounts are as follows (in millions):

	December 31,
	2014		2013
North America (1)	$	13,257	$	9,991
International (1)	6,747		6,199
AWS (2)	6,981		3,840
Corporate	27,520		20,129
Consolidated	$	54,505	$	40,159

_____________________________
(1) North America and International segment assets primarily consist of inventory, accounts receivable, and property and equipment.
(2) AWS segment assets primarily consist of property and equipment and accounts receivable.


Property and Equipment, Net

Property and equipment, net by segment is as follows (in millions):

	December 31,
	2014		2013
North America	$	5,373	$	3,477
International	2,000		1,549
AWS	6,043		3,253
Corporate	3,551		2,670
Consolidated	$	16,967	$	10,949

Property and Equipment Additions

Total property and equipment additions by segment are as follows (in millions):

	December 31,
	2014		2013
North America (1)	$	2,833	$	2,326
International (1)	767		851
AWS (2)	4,295		2,215
Corporate	1,586		981
Consolidated	$	9,481	$	6,373

___	_	____________
(1)		Includes property and equipment added under capital leases of $887 million and $555 million in 2014 and 2013, and under other financing arrangements of $599 million and $715 million in 2014 and 2013.
(2)		Includes property and equipment added under capital leases of $3.0 billion and $1.3 billion in 2014 and 2013, and under other financing arrangements of $62 million and $67 million in 2014 and 2013.


AMAZON.COM, INC.
Supplemental Segment Financial Information

Depreciation Expense

Depreciation expense, including amortization of capitalized internal-use software and website development costs and other corporate property and equipment depreciation expense, are allocated to all segments based on usage. Total depreciation expense, by segment, is as follows (in millions):

	Year Ended December 31,
	2014		2013
North America	$	1,203	$	914
International	740		583
AWS	1,673		963
Consolidated	$	3,616	$	2,460

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2015
Revenues	$	15,420		$	17,258
Increase in revenues year over year		19	%		12	%

Traffic acquisition costs (TAC)	$	3,232		$	3,345

GAAP operating income	$	4,115		$	4,447
GAAP operating margin		27	%		26	%
Non-GAAP operating income	$	4,954		$	5,650
Non-GAAP operating margin		32	%		33	%

GAAP net income*	$	3,452		$	3,586
Non-GAAP net income	$	4,299		$	4,532

GAAP diluted EPS*	$	5.04		$	5.20
Non-GAAP diluted EPS	$	6.27		$	6.57
Diluted shares (in thousands)		685,212			689,498
*GAAP net income and diluted EPS include Net Loss from Discontinued Operations for the three months ended March 31, 2014.

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2015
TAC to Google Network Members	$	2,387		$	2,432
TAC to distribution partners	$	845		$	913
Total TAC	$	3,232		$	3,345

TAC to Google Network Members as % of Google Network Members’ revenues*		68	%		68	%
TAC to distribution partners as % of Google Website revenues		8	%		8	%
Total TAC as % of advertising revenues*		23	%		22	%

Other cost of revenues	$	2,729		$	3,011
Other cost of revenue as % of revenues		18	%		17	%

Operating expenses (other than cost of revenues)	$	5,344		$	6,455
Operating expenses as % of revenues		35	%		37	%

Stock-based compensation expense**	$	839		$	1,203
Tax benefit related to stock-based compensation expense	$	(190)		$	(257)
Depreciation, amortization, and impairment charges**	$	1,086		$	1,177
*Prior period amounts have been adjusted to reflect the reclassification primarily related to DoubleClick ad serving software revenues from Other Revenues to Advertising Revenues from Google Network Members’ Websites to conform with our current period presentation.
**Included in Cost of revenues and Operating expenses. Excludes impact from discontinued operations for the three months ended March 31, 2014.

April 17	Chris D’Elia: Incorrigible	Stand-Up Comedy Special	Global Original
April 26	Chef’s Table	Docu-Series	Global Original

May 8	Grace and Frankie	Series	Global Original
May 21	Between (All territories except Canada)	Series	Global Original
May 22	Jen Kirkman: I’m Gonna Die Alone (And I Feel Fine)	Stand-Up Comedy Special	Global Original
May 22	The Other One: The Long, Strange Trip of Bob Weir	Documentary	Global Original

June 5	Sense8 — Available in Ultra HD 4K	Series	Global Original
June 12	Orange is the New Black – Season 3	Series	Global Original
June 26	What Happened, Miss Simone?	Documentary	Global Original


Q3 2015
July 10	Chris Tucker Live	Stand-Up Comedy Series	Global Original
July 17	Wet Hot American Summer	Series	Global Original

August 28	Crouching Tiger: The Green Destiny — Available in Ultra HD 4K	Film	Global Original


Coming Up in 2015 & 2016
—	Beasts of No Nation	Film	Global Original
2015	BoJack Horseman – Season 2	Series	Global Original
2016	Bottersnikes & Grumbles (All territories except UK and Australia)	Kids	Global Original
2016	Care Bears and Cousins (All territories except France and Germany)	Kids	Global Original
2015	Chelsea Handler Docu-Comedy Specials	Comedy Doc Special	Global Original
2016	Chelsea Handler Talk Show	—	Global Original
2015	Club de Cuervos	Series	Global Original
2016	The Crown	Series	Global Original
2016	Danger Mouse (All territories except Germany, France, UK and Ireland)	Kids	Global Original
2015	Dinotrux	Kids	Global Original
2015	Dragons	Kids	Global Original
2015	Ever After High	Kids	Global Original
2015	F is for Family	Series	Global Original
2015	Fargo – Season 2 (France, Germany, Austria, Switzerland & Benelux only)	Series	First Run Non-US
2016	Flaked	Series	Global Original
2015	From Dusk Till Dawn – Season 2 (All non-US territories)	Series	First Run Non-US
2015	Hemlock Grove – Season 3	Series	Global Original
2016	Jadotville	Film	Global Original
2016	Justin Time: The New Adventures	Kids	Global Original
2015	Knights of Sidonia – Season 2	Anime Series	Global Original
2016	KONG – KING OF THE APES	Kids	Global Original
—	Lemony Snicket’s A Series of Unfortunate Events	Series	Global Original
2015	Longmire – Season 4 (US & Canada only)	Series	Global Original
2016	Love	Series	Global Original
2016	The Magic School Bus	Kids	Global Original
—	Marco Polo – Season 2 — Available in Ultra HD 4K	Series	Global Original
2015	Marseille	Series	Global Original
2015/2016	Marvel’s A.K.A. Jessica Jones — Available in Ultra HD 4K	Series	Global Original
2016	Montauk	Kids	Global Original
2015	Narcos — Available in Ultra HD 4K	Series	Global Original
2016	The OA	Series	Global Original
—	Peaky Blinders – Season 3 (US only)	Series	Global Original
2015	Penny Dreadful – Season 2 (France, Germany, Austria, Switzerland & Benelux only)	Series	First Run Non-US
2015	Pompidou	Series	Global Original
2015	Popples (All territories except France)	Kids	Global Original
2015	Some Assembly Required (All territories except Canada)	Kids	Global Original
2016	Special Correspondents	Series	Global Original
2015	Super 4	Kids	Global Original
2015	Trailer Park Boys – Season 9	Series	Global Original
2015	What Happened, Miss Simone?	Documentary	Global Original
2015	With Bob and David	Series	Global Original
2016	Winx Club WOW: World of Winx	Kids	Global Original

Fourth Quarter and Full Year 2014 Financial Summary

	Three Months Ended December 31,				Year Ended December 31,
In millions, except percentages and per share amounts	2014		2013		2014		2013
Revenue	$	3,851	$	2,585	$	12,466	$	7,872
Income from Operations
GAAP	$	1,133	$	1,133	$	4,994	$	2,804
Non-GAAP*	$	2,219	$	1,498	$	7,207	$	3,948
Operating Margin
GAAP	29%		44%		40%		36%
Non-GAAP*	58%		58%		58%		50%
Net Income
GAAP	$	701	$	523	$	2,940	$	1,500
Non-GAAP*	$	1,518	$	814	$	4,713	$	2,334
Diluted Earnings per Share (EPS)
GAAP	$	0.25	$	0.20	$	1.10	$	0.60
Non-GAAP*	$	0.54	$	0.32	$	1.77	$	0.93

FACEBOOK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except for per share amounts)
(Unaudited)

	Three Months EndedDecember 31,				Year Ended December 31,
	2014		2013		2014		2013
Revenue	$	3,851	$	2,585	$	12,466	$	7,872
Costs and expenses:
Cost of revenue	653		491		2,153		1,875
Research and development	1,111		408		2,666		1,415
Marketing and sales	624		292		1,680		997
General and administrative	330		261		973		781
Total costs and expenses	2,718		1,452		7,472		5,068
Income from operations	1,133		1,133		4,994		2,804
Interest and other income/(expense), net	(19)		(3)		(84)		(50)
Income before provision for income taxes	1,114		1,130		4,910		2,754
Provision for income taxes	413		607		1,970		1,254
Net income	$	701	$	523	$	2,940	$	1,500
Less: Net income attributable to participating securities	5		3		15		9
Net income attributable to Class A and Class B common stockholders	$	696	$	520	$	2,925	$	1,491
Earnings per share attributable to Class A and Class B common stockholders:
Basic	$	0.25	$	0.21	$	1.12	$	0.62
Diluted	$	0.25	$	0.20	$	1.10	$	0.60
Weighted average shares used to compute earnings per share attributable to Class A and Class B common stockholders:
Basic	2,761		2,458		2,614		2,420
Diluted	2,816		2,558		2,664		2,517
Share-based compensation expense included in costs and expenses:
Cost of revenue	$	18	$	11	$	62	$	42
Research and development	685		172		1,328		604
Marketing and sales	103		42		249		133
General and administrative	90		48		198		127
Total share-based compensation expense	$	896	$	273	$	1,837	$	906
Payroll tax expenses related to share-based compensation included in costs and expenses:
Cost of revenue	$	—	$	—	$	3	$	1
Research and development	6		4		33		30
Marketing and sales	2		1		9		8
General and administrative	5		48		12		54
Total payroll tax expenses related to share-based compensation	$	13	$	53	$	57	$	93
Amortization of intangible assets included in costs and expenses:
Cost of revenue	$	42	$	7	$	87	$	16
Research and development	10		8		33		36
Marketing and sales	102		1		105		4
General and administrative	23		23		94		89
Total amortization of intangible assets	$	177	$	39	$	319	$	145



FACEBOOK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)

		December 31, 2014		December 31, 2013
Assets
Current assets:
	Cash and cash equivalents	$	4,315	$	3,323
	Marketable securities	6,884		8,126
	Accounts receivable, net of allowances for doubtful accounts of $39 and $38 as of December 31, 2014 andDecember 31, 2013, respectively	1,678		1,109
	Prepaid expenses and other current assets	793		512
	Total current assets	13,670		13,070
Property and equipment, net		3,967		2,882
Intangible assets, net		3,929		883
Goodwill		17,981		839
Other assets		637		221
Total assets		$	40,184	$	17,895

Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable	$	176	$	87
	Partners payable	202		181
	Accrued expenses and other current liabilities	866		555
	Deferred revenue and deposits	66		38
	Current portion of capital lease obligations	114		239
	Total current liabilities	1,424		1,100

Capital lease obligations, less current portion		119		237
Other liabilities		2,545		1,088
	Total liabilities	4,088		2,425
Stockholders’ equity
	Common stock and additional paid-in capital	30,225		12,297
	Accumulated other comprehensive (loss) income	(228)		14
	Retained earnings	6,099		3,159
	Total stockholders’ equity	36,096		15,470
Total liabilities and stockholders’ equity		$	40,184	$	17,895

Tag: Earnings

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WEBCAST AND CONFERENCE CALL INFORMATION

FORWARD-LOOKING STATEMENTS

ABOUT NON-GAAP FINANCIAL MEASURES

Q4 Financial Summary

Q4 Financial Highlights

WEBCAST AND CONFERENCE CALL INFORMATION

FORWARD-LOOKING STATEMENTS

ABOUT NON-GAAP FINANCIAL MEASURES



Reconciliation of Non-GAAP Results to Nearest GAAP Measures*
(In millions, except percentages and per share amounts)
(Unaudited)

	Three Months Ended December 31,				Year Ended December 31,
	2014		2013		2014		2013
GAAP revenue	$	3,851	$	2,585	$	12,466	$	7,872
Foreign exchange effect on 2014 revenue using 2013 rates	(103)				(61)
Revenue excluding foreign exchange effect	$	3,954			$	12,527
GAAP revenue year-over-year change %	49%				58%
Revenue excluding foreign exchange effect year-over-year change %	53%				59%
GAAP advertising revenue	$	3,594	$	2,344	$	11,492	$	6,986
Foreign exchange effect on 2014 advertising revenue using 2013 rates	(103)				(61)
Advertising revenue excluding foreign exchange effect	$	3,697			$	11,553
GAAP advertising revenue year-over-year change %	53%				65%
Advertising revenue excluding foreign exchange effect year-over-year change %	58%				65%
GAAP costs and expenses	$	2,718	$	1,452	$	7,472	$	5,068
Share-based compensation expense	(896)		(273)		(1,837)		(906)
Payroll tax expenses related to share-based compensation	(13)		(53)		(57)		(93)
Amortization of intangible assets	(177)		(39)		(319)		(145)
Non-GAAP costs and expenses	$	1,632	$	1,087	$	5,259	$	3,924
GAAP income from operations	$	1,133	$	1,133	$	4,994	$	2,804
Share-based compensation expense	896		273		1,837		906
Payroll tax expenses related to share-based compensation	13		53		57		93
Amortization of intangible assets	177		39		319		145
Non-GAAP income from operations	$	2,219	$	1,498	$	7,207	$	3,948
GAAP net income	$	701	$	523	$	2,940	$	1,500
Share-based compensation expense	896		273		1,837		906
Payroll tax expenses related to share-based compensation	13		53		57		93
Amortization of intangible assets	177		39		319		145
Income tax adjustments	(269)		(74)		(440)		(310)
Non-GAAP net income	$	1,518	$	814	$	4,713	$	2,334
GAAP and Non-GAAP diluted shares	2,816		2,558		2,664		2,517
GAAP diluted earnings per share	$	0.25	$	0.20	$	1.10	$	0.60
Net income attributable to participating securities	—		—		(0.01)		—
Non-GAAP adjustments to net income	0.29		0.12		0.68		0.33
Non-GAAP diluted earnings per share	$	0.54	$	0.32	$	1.77	$	0.93
GAAP operating margin	29%		44%		40%		36%
Share-based compensation expense	23%		11%		15%		12%
Payroll tax expenses related to share-based compensation	—%		2%		—%		1%
Amortization of intangible assets	5%		2%		3%		2%
Non-GAAP operating margin	58%		58%		58%		50%
GAAP income before provision for income taxes	$	1,114	$	1,130	$	4,910	$	2,754
GAAP provision for income taxes	413		607		1,970		1,254
GAAP effective tax rate	37%		54%		40%		46%
GAAP income before provision for income taxes	$	1,114	$	1,130	$	4,910	$	2,754
Share-based compensation and related payroll tax expenses	909		326		1,894		999
Amortization of intangible assets	177		39		319		145
Non-GAAP income before provision for income taxes	$	2,200	$	1,495	$	7,123	$	3,898
Non-GAAP provision for income taxes	682		681		2,410		1,564
Non-GAAP effective tax rate	31%		46%		34%		40%
Net cash provided by operating activities	$	1,583	$	1,231	$	5,457	$	4,222
Purchases of property and equipment	(517)		(483)		(1,831)		(1,362)
Property and equipment acquired under capital leases	—		—		—		(11)
Free cash flow	$	1,066	$	748	$	3,626	$	2,849


GAAP Results

	Q1 2015		Q1 2014		Vs. Q1 2014
Revenue	$	12.2 billion	$	12.1 billion	1.3	%
Net Income	$	1.8 billion	$	2.0 billion	(8.4	)%
Earnings per Share	$	0.35	$	0.37	(5.4	)%


Non-GAAP Results

	Q1 2015		Q1 2014		Vs. Q1 2014
Net Income	$	2.8 billion	$	2.9 billion	(2.3	)%
Earnings per Share	$	0.54	$	0.53	1.9	%


CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per-share amounts)
(Unaudited)

			Three Months Ended
			October 25, 2014			October 26, 2013
REVENUE:
	Product		$	9,435		$	9,397
	Service			2,810			2,688
		Total revenue		12,245			12,085
COST OF SALES:
	Product			3,919			3,747
	Service			993			931
		Total cost of sales		4,912			4,678
GROSS MARGIN				7,333			7,407
OPERATING EXPENSES:
	Research and development			1,583			1,724
	Sales and marketing			2,515			2,411
	General and administrative			504			515
	Amortization of purchased intangible assets			71			65
	Restructuring and other charges			318			237
		Total operating expenses		4,991			4,952
OPERATING INCOME				2,342			2,455
	Interest income			179			169
	Interest expense			(139	)		(140	)
	Other income (loss), net			(22	)		56
		Interest and other income (loss), net		18			85
INCOME BEFORE PROVISION FOR INCOME TAXES				2,360			2,540
Provision for income taxes				532			544
	NET INCOME		$	1,828		$	1,996

Net income per share:
	Basic		$	0.36		$	0.37
	Diluted		$	0.35		$	0.37
Shares used in per-share calculation:
	Basic			5,112			5,378
	Diluted			5,156			5,430

Cash dividends declared per common share			$	0.19		$	0.17


RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
(In millions, except per-share amounts)

			Three Months Ended
			October 25, 2014			October 26, 2013
GAAP net income			$	1,828		$	1,996
	Adjustments to cost of sales:
		Share-based compensation expense		48			43
		Amortization of acquisition-related intangible assets		181			167
		Patent portfolio charge		188			—
	Total adjustments to GAAP cost of sales			417			210
	Adjustments to operating expenses:
		Share-based compensation expense		325			269
		Amortization of acquisition-related intangible assets		71			65
		Acquisition-related/divestiture costs		101			308
		Significant asset impairments and restructurings		318			237
	Total adjustments to GAAP operating expenses			815			879
	Total adjustments to GAAP income before provision for income taxes			1,232			1,089
	Income tax effect of non-GAAP adjustments			(258	)		(218	)
Non-GAAP net income			$	2,802		$	2,867

Diluted net income per share:
GAAP			$	0.35		$	0.37
Non-GAAP			$	0.54		$	0.53


RECONCILIATION OF GAAP TO NON-GAAP EFFECTIVE TAX RATE

	Three Months Ended
	October 25, 2014		October 26, 2013
GAAP effective tax rate	22.5	%	21.4	%
Tax effect of non-GAAP adjustments to net income	(0.5	)%	(0.4	)%
Non-GAAP effective tax rate	22.0	%	21.0	%


CASH AND CASH EQUIVALENTS AND INVESTMENTS
(In millions)

			October 25, 2014		July 26, 2014
Cash and cash equivalents and investments:
	Cash and cash equivalents		$	4,387	$	6,726
	Fixed income securities			45,923		43,396
	Publicly traded equity securities			1,797		1,952
		Total	$	52,107	$	52,074


RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES
TO FREE CASH FLOW (NON-GAAP)
(In millions)

	Three Months Ended
	October 25, 2014			July 26, 2014			October 26, 2013
Net cash provided by operating activities	$	2,491		$	3,612		$	2,649
Acquisition of property and equipment		(285	)		(325	)		(315	)
Free cash flow	$	2,206		$	3,287		$	2,334


DIVIDENDS PAID AND REPURCHASES OF COMMON STOCK
(In millions, except per-share amounts)

		DIVIDENDS				STOCK REPURCHASE PROGRAM					TOTAL
Quarter Ended		Per Share		Amount		Shares	Weighted-Average Price per Share		Amount		Amount
Fiscal 2015
	October 25, 2014	$	0.19	$	973	41	$	24.58	$	1,013	$	1,986

Fiscal 2014
	July 26, 2014	$	0.19	$	974	61	$	25.11	$	1,514	$	2,488
	April 26, 2014		0.19		974	90	$	22.24		2,005		2,979
	January 25, 2014		0.17		896	185	$	21.73		4,020		4,916
	October 26, 2013		0.17		914	84	$	23.65		2,000		2,914
Total		$	0.72	$	3,758	420	$	22.71	$	9,539	$	13,297


ACCOUNTS RECEIVABLE AND DSO
(In millions, except DSO)

	October 25, 2014		July 26, 2014		October 26, 2013
Accounts receivable, net	$	4,375	$	5,157	$	5,188
Days sales outstanding in accounts receivable (DSO)		33		38		39