Google NZ gets less revenue from parent in 2015

Google NZ charges its parent and related companies for market and research and development services, which was bolstered in 2014 by Project Loon. Photo / Getty Images

Google New Zealand, the local unit of the global search engine, received less revenue from its parent and related companies in 2015 as the Project Loon broadband pilot project was scaled back from 2014, even though it continued to dominate the country's online advertising.

The local subsidiary of Alphabet Inc, Google's global holding company, reported a loss of $601,463 in calendar 2015 on revenue of $10.7 million, compared to a profit of $160,253 on revenue of $14.9 million in 2014, financial statements filed with the Companies Office show. Google NZ charges its parent and related companies for market and research and development services, which was bolstered in 2014 by Project Loon - a pilot programme using balloons in the stratosphere aimed at providing rural areas with broadband access.

Google NZ's directors said the reduction of New Zealand activity in Project Loon "returned the results of the company to levels comparable with activities prior to the Loon project." The local company posted a loss of $60,389 on revenue of $10.1 million in 2013.

The $10.7 million of revenue attributed to the local entity in the latest year is about one-sixth of the $67.4 million in annual ad revenue Google generates in New Zealand but recognises in an offshore subsidiary.

The ad sales amount to 37 percent of the local digital advertising market, making it the biggest participant at twice the size of second-ranked Facebook, according to Standard Media Index booking data as at April 4.

PwC estimates the annual value of New Zealand's internet advertising market will grow to $1.58 billion by 2020 from $828 million in 2015. More than half of that revenue is generated by paid searches, of which Google is responsible for 90 percent. The accounting firm estimates paid search ad revenue will be worth $897 million by 2020.

"With the rise of mobile, digital ads offer marketers the opportunity to reach people at precisely the moment when they are trying to get something done," a Google spokesman said in an emailed statement. "We've seen advertisers in New Zealand and across the world experiment with new online formats to tell their story in more creative and entertaining ways."

Despite the fall in billings to related companies, Google NZ boosted spending on employees to $5 million in 2015 from $4.6 million a year earlier and more than doubled its spending on advertising and promotions to $1.1 million. Its facilities expense also rose 14 percent to $1.1 million as the local entity signed up to a new lease, entering into its biggest capital commitment since it incorporated in 2006.

With the rise of mobile, digital ads offer marketers the opportunity to reach people at precisely the moment when they are trying to get something done.

Google NZ faces minimum lease payments of $771,411 within a year, and a further $363,840 between one and five years.

The directors' report at the front of the statements also broke out the company's profit/loss and current tax expense for a second year, showing Google NZ's current tax expense fell to $251,018 in 2015 from $371,799 a year earlier, though up from $213,597 in 2013.

Google is one of several multinational firm criticised for using complicated structures to minimise their tax bill, something developed nations hope to clamp down on through the OECD's base erosion and profit shifting project.