Interview Question

Interview Mountain View, CA

Google recieves X dollars of revenue from the US per Y

  searches and X revenue in UK per Y searchs. However, in Canada Google only gets 0.5X revenue per Y searches. How would you conduct a financial analysis to determine the cause for this revenue differential?
Answer

Interview Answer

7 Answers

16

A variance arises when there is a difference between actual and budget figures,Variances can be either: Positive/favourable (better than expected) or Adverse/unfavourable ( worse than expected) A favourable variance might mean that: Costs were lower than expected in the budget, or Revenue/profits were higher than expected By contrast, an adverse variance might arise because: Costs were higher than expected Revenue/profits were lower than expected Should variances be a matter of concern to management? After all, a budget is just an estimate of what is going to happen rather than reality. The answer is – it depends. The significance of a variance will depend on factors such as: Whether it is positive or negative – adverse variances (negative) should be of more concern Was it foreseen? Was it foreseeable? How big was the variance - absolute size (in money terms) and relative size (in percentage terms)? The cause Whether it is a temporary problem or the result of a long term trend “Management by exception” is the name given to the process of focusing on activities that require attention and ignoring those that appear to be running smoothly Budget control and analysis of variances facilitates management by exception since it highlights areas of business performance which are not in line with expectations. Items of income or spending that show no or small variances require no action. Instead concentrate on items showing a large adverse variance. Are all adverse variances bad news? An adverse variance might result from something that is good that has happened in the business. For example, a budget statement might show higher production costs than budget (adverse variance). However, these may have occurred because sales are significantly higher than budget (favourable budget). Remember, it is the cause and significance of a variance that matters – not whether it is favourable or adverse.

vivekananda reddy on Nov 20, 2013
1

it may helps you...

vivekananda reddy on Nov 20, 2013
1

vivekananda, could you please put this in laymen terms. My brain just got fried when i was reading your answer,

i am confused on Jun 30, 2014
14

the question is asking only about revenue. it seems to me that talking about costs and profitability is not relevant to the question. some factors I would think about are: maybe Canada has lower click-through rates, perhaps due to search algorithms that are not optimized for Canadian customers. Secondly maybe advertisers are paying less for each of those clicks, in which case Google could try to drive more demand amongst Canadian advertisers to increase the prices they pay.

anonymous on Aug 31, 2014
2

Another thing to consider is that there are two types of searches - one that Google hosts on their own websites (in which case they would earn 100% of the revenue) and the one that Google hosts on other people's websites (in which case they would pay out a percentage of their revenue - so less than 100%). It is possible they are selling more of the first product in US/UK, while more of the latter product in Canada.

Akhil D on Oct 24, 2014
1

This may be a more minor issue, but it may be be interesting to investigate the significance of the difference in local English usage: maybe many of the English search terms are bid on by UK/US advertisers that are not bidding on Canadian synonyms...

Ella R on Mar 15, 2015
0

First understand how Google is defining "Revenue" and Revenue Recognition. The key here would be to develop various KPI around clicks to revenue and isolate for the culprit. I would start, with checking into Gross Revenues (Before deductions, allowances) vs Net Revenue (After adjustments). Exchange Rates would be a factor, but are usually included as an expense (but may vary depending on the firm).

John on Mar 27, 2015

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