Quote:
Originally posted by competentone
Google has a system where most (from their SEC filings it would be about 90%) of their revenue is from small advertisers. These advertisers have to pay Google with a credit card. At no time, more than $500 is owed to Google from any individual small advertiser -- for starting advertisers, that number is less than $500, but for the established ones, their credit cards are charged when the advertising used reaches $500.
Last year's class action suit against Google gave us the information that Google has had a total of about 400,000 advertisers. Even if we assumed that all of these 400,000 advertisers are still advertising with Google and all of them were running a maximum outstanding balance with Google of $500, we still just get a number of $250 million in receivables.
Even if we add the probable amounts outstanding from the "big" (approximately 10% as described in Google's SEC filings) advertisers, I still can't see a receivables number that should be any larger than about $450 million (and that is being extremely biased in favor of a larger number).
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(400k advertisers times $500 ea = $200M.)
How are you determining that large customers don't make up more than 10% of their receivables book? In '05, AOL alone accounted for 9% of revenue. I think you may be mis-reading the SOP 94-6 disclosure on concentration of credit risk - in Note 1 of the '05 10K financial statement notes, they are stating that no other
single advertiser makes up more than 10% of revenue. If Google has 10 large advertisers, other than AOL, that represent, on average, 5% of revenue each, you've just explained 50% of their A/R portfolio (assuming consistent collections among each). Their DSO looks great - 41 days at 12.31.05 and 34 days at 6.30.06 - and their bad debt expense also looks good when compared to their allowances. Further, gross accounts receivable is usually pretty straightforward to audit - auditors confirm balances with debtors and also vouch subsequent payment of invoices outstanding at the BS date - not a lot of sleep is lost over ensuring receivables exist.
I do encourage your skepticism as a reader. What about revenue? That's where the red flags usually pop up in a tech/web company like this. I'd be more concerned about a major customer publicly calling billings into question, or GOOG managment coming forward with a quality of earnings problem, than a receivables issue.