How many Nexus 7 did Google sell and at what margin? Revenues and Cost of Revenues Analysis

Summary: Google likely sold one million Nexus 7 last quarter but did not make a dime of profit from the sales.

I have presented similar such numbers for devices sold when companies do not release their numbers. Such analyses are based on the three accounting statements – balance sheet, income statement and cash flow statement, after all businesses are required to disclose all their revenues, expenses, inventories and cash flow.

Om Malik did similar analysis of Google’s latest  earnings release. Om looked at earning statement line item on “Other Revenue” and how it jumped from $385M to $666M from same quarter last year and stated that Google likely sold million units of Nexus 7.

Since Google launched Nexus 7 in July 2012 it is better to use the jump in Other Revenue from their second quarter to third quarter.

Other Revenues was $439M in Q2 and $666M in Q3. The difference $227M. But a look at past few quarters show Other Revenue is on the rise by about 5% every quarter. Accounting for that $21M growth, Google made additional $206M in unaccounted for Other Revenue which likely all came from Nexus 7 sales. At an ASP of approximately $210 that points to indeed million units of Nexus 7 sold.

The rule of accounting requires revenues from same period must be matched with costs incurred in the same period. Let us reconcile the cost of selling  1 million Nexus 7.

Google does not make it easy for us by itemizing Other Costs.  The details are in the text of the 8-K but Google combines all of the Motorola COGS numbers which adds additional step to our math.

Other Cost of Revenues – Other cost of revenues, which is comprised primarily of data center operational expenses, amortization of intangible assets, content acquisition costs, credit card processing charges, and manufacturing and inventory-related costs, increased to $3.78 billion, or 27% of revenues, in the third quarter of 2012, compared to $1.17 billion, or 12% of revenues, in the third quarter of 2011.

In Q3 this was $3.78B of which $2.11B was from Motorola. So Google’s cost of revenues is $1.67B.

In Q2 this was $2.4B of which $1.029B was from Motorola. So Google’s cost of revenues is $1.371B. This is all their Cost of Revenue without Nexus 7.

The difference, $1.67B-$1.371B= $299M is unaccounted for. Not all could be due to Nexus 7, just like we did for revenues we should account for other growth.

The Other Cost of Revenue number in Q1 was $1.28B (no Motorola all Google). This is all their Cost of Revenue without Nexus 7. Assuming the same growth percentage from Q1 to Q2 applied to Q2 to Q3, the Q2 number including growth of other costs is $1.46B

So Cost of Revenues for Nexus 7 is  $1.67B-$1.46B= $210M, same as the Revenue from Nexus 7.

Remarkable coincidence. May be not.

For one thing it confirms the math that Google most likely sold one million Nexus 7.

More importantly they are not making a dime from Nexus 7 sales, selling it at cost like Amazon is.

2 thoughts on “How many Nexus 7 did Google sell and at what margin? Revenues and Cost of Revenues Analysis

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