Google 2013 Annual Report Download - page 31


PART II
ITEM7.Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations
TheoperatingmarginwerealizeonrevenuesgeneratedfromadsplacedonourGoogleNetworkMembers’websitesthroughour
AdSenseprogramissignicantlylowerthantheoperatingmarginwerealizefromrevenuesgeneratedfromadsplacedonour
websites because most of the advertiser fees from ads served on Google Network Members’ websites are shared with our Google
NetworkMembers.Forthepastveyears,growthinadvertisingrevenuesfromourwebsiteshasgenerallyexceededthatfromour
GoogleNetworkMembers’websites.Thistrendhashadapositiveimpactonouroperatingmargins,andweexpectthatthiswill
continue for the foreseeable future, although the relative rate of growth in revenues from our websites compared to the rate of
growthinrevenuesfromourGoogleNetworkMembers’websitesmayvaryovertime.Also,themarginsonadvertisingrevenues
frommobilephonesandotherneweradvertisingformatsaregenerallylowerthanthosefromdesktopcomputersandtablets.
Weexpectthistrendtocontinuetopressureourmargins,particularlyifwefailtorealizetheopportunitiesweanticipatewiththe
transitiontoadynamicmulti-screenenvironment.
WeconductourMotorolaMobilebusinessinhighlycompetitivemarkets,facingbothnewandestablishedcompetitors.The
marketsformanyofourproductsarecharacterizedbyrapidlychangingtechnologies,frequentnewproductintroductions,
changingconsumertrends,shortproductlifecycles,consumerloyaltyandevolvingindustrystandards.Marketdisruptions
caused by new technologies, the entry of new competitors, consolidations among our customers and competitors, changes in
regulatory requirements, changes in economic conditions, supply chain interruptions or other factors, can introduce volatility
intoourbusinesses.Meetingallofthesechallengesrequiresconsistentoperationalplanningandexecutionandinvestmentin
technology,resultingininnovativeproductsthatmeettheneedsofourcustomersaroundtheworld.
From an overall business perspective, we continue to invest aggressively in areas of strategic focus, our systems, data centers,
corporatefacilities,informationtechnologyinfrastructure,andemployees.Weexpecttocontinuetohireaggressivelyfor2014and
providecompetitivecompensationprogramstoouremployees.Ourfull-timeemployeeheadcountwas53,861(including11,113
headcountfromMotorolaMobileand5,204fromMotorolaHome)atDecember31,2012,and47,756(including3,894headcount
fromMotorolaMobile)atDecember31,2013.Acquisitionswillalsoremainanimportantcomponentofourstrategyanduseof
capital.Weexpectourcostofrevenueswillincreaseindollarsandmayincreaseasapercentageofrevenuesinfutureperiods,
primarilyasaresultofforecastedincreasesintracacquisitioncosts,manufacturingandinventory-relatedcosts,datacenter
costs,contentacquisitioncosts,creditcardandothertransactionfees,andothercosts.Inparticular,tracacquisitioncostsas
apercentageofadvertisingrevenuesmayincreaseinthefutureifweareunabletocontinuetoimprovethemonetizationor
generationofrevenuesfromtraconourwebsitesandourGoogleNetworkMembers’websites.
As we expand our advertising programs and other products to international markets, we continue to increase our exposure to
uctuationsinforeigncurrencytoU.S.dollarexchangerates.Wehaveaforeignexchangeriskmanagementprogramthatis
designedtoreduceourexposuretouctuationsinforeigncurrencyexchangerates.However,thisprogramwillnotfullyoset
theeectofuctuationsonourrevenuesandearnings.
Otherrevenuesconsistofnon-advertisingrevenuesincludinglicensing,hardwareanddigitalcontent.Weexpectotherrevenues
tocontinuetogrow.However,operatingmarginonotherrevenuesisgenerallylowerthanthatonadvertisingrevenues.
Results of Operations
WecompletedouracquisitionofMotorolaonMay22,2012(theacquisitiondate).InDecember2012,weenteredintoan
agreementforthedispositionoftheMotorolaHomesegment,andconsequently,nancialresultsrelatedtoMotorolaHomewere
presentedasnetincome(loss)fromdiscontinuedoperationsintheConsolidatedStatementsofIncomeinallperiodspresented.
InApril2013,wecompletedthedispositionoftheMotorolaHomesegment.
InJanuary2014,weenteredintoanagreementwithLenovoprovidingforthedispositionoftheMotorolaMobilesegment.The
transactionisexpectedtoclosein2014.Asweevaluatetheimpactofthisagreement,weexpectnancialresultsofMotorola
Mobile will be presented as net income (loss) from discontinued operations on the Consolidated Statements of Income and
assets and liabilities of Motorola Mobile to be disposed of will be presented as held for sale on the Consolidated Balance Sheets
beginningintherstquarterof2014.
SubsequenttotheacquisitionofMotorola,weinitiatedarestructuringplanofourMotorolabusiness.SeeNote9ofNotesto
ConsolidatedFinancialStatementsincludedinItem8ofthisAnnualReportonForm10-Kforfurtherdiscussionofthisrestructuring
planandtheassociatedrestructuringcharges.
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