Google’s Revenue Reignites Mobile Worries

July 18, 2013, 5:56 PM
Google’s Revenue Reignites Mobile Worries

By Amir Efrati

Google GOOG -0.86% reported lower-than-expected second-quarter revenue, reigniting concerns about the impact of mobile devices on online advertising prices and the Web giant’s push into lower-margin businesses.

The Mountain View, Calif., company reported a 20% rise in revenue from its core business in the three months that ended June 30, slightly lower than the 22% revenue rise seen in the prior two quarters. The company also reported a 16% rise in profit for the second quarter in a row.

But Google couldn’t stem a drop in search-ad prices. The “cost-per-click,” or the price that advertisers paid Google every time someone clicked on an on its search engine, dropped 6% from a year ago. Analysts had expected prices to drop by only about 3% in the second quarter.

During an earnings call with analysts, Google’s Chief Financial Officer Patrick Pichette said “clearly, mobile has some effect” but overall the “health of the business” was positive, given that Google saw 23% more clicks on its ads in the second quarter compared to a year earlier, offsetting the lower prices.

Google’s shares fell more than 5% in after-hours trading after finishing earlier at $910.79, or down 0.84%, on the Nasdaq stock market.

“The CPC drop is a bit surprising, and perhaps raises again the question of whether Google really benefits from the Mobile shift,” said Mark Mahaney, a stock analyst at RBC Capital Markets.

Search-ad prices have been declining since the fourth quarter of 2011. Analysts attribute the drop to the fact that prices for showing ads on sites that are accessed via mobile devices have long been lower than prices for ads viewed on PCs.

Google executives have said repeatedly they don’t think mobile devices would hurt Google’s business in the long term.

The company has been looking to boost the mobile-ad rates by requiring advertisers using Google’s AdWords online-ad system to use the “enhanced campaigns” system and also pay for ads on tablet devices if they want to advertise on PCs.

Chief Business Officer Nikesh Arora said YouTube’s mobile revenue in June of this year was 200% higher than its revenue in the beginning of the year, though he didn’t give specifics.

He said that many advertisers weren’t “addressing the mobile opportunity appropriately” and that Google has helped many of them to increase their advertising success with consumers on mobile devices.

Google’s online-ad sales growth continues to outpace the overall growth seen in the online-ad market, most analysts say. Rival Yahoo Inc. earlier this week reported a 7% drop in revenue due to market-share losses in its sale of online ads. Social network Facebook Inc. FB -1.76%, Google’s other main competitor in the online-ad market, reports second-quarter results next week.

In the analyst call, CEO Larry Page said he would “continue to invest the vast majority of our resources and time in our core products,” such as Google’s Android mobile operating system that powers smartphones, tablets and other devices.

More than 900 million Android devices have been activated since the launch of Android in late 2008, and 1.5 million devices are being activated every day, he said. Google generates revenue from Web-search, Google Maps, YouTube and other apps that are preinstalled on Android devices.

Page added that “my job as CEO is to continue to think about the future” and that’s why Google invests in projects such as using high-altitude balloons to provide Internet access to people in remote areas, among other projects.

Google has worked to slim down its troubled Motorola MSI -0.10% hardware-design and manufacturing unit, which it acquired in May of last year. But on Thursday, Google said Motorola posted a second-quarter loss of $342 million, up from a $271 million loss in the first quarter.

The company plans to spend as much as $500 million to market Motorola’s new flagship smartphone, the Moto X, starting later this year and it’s working on a slew of other devices, people familiar with the matter have said.

The losses at Motorola, among other factors, contributed to a lower-than-expected earnings per share of $9.54 in a second quarter, up 13% from $8.42 a year ago. Analysts had been expected earnings of about $10.80 per share.

In the call, Arora said growth in Google’s emerging business lines was accelerating. Those include hardware, such as laptops based on Google’s Chrome operating system, which are available in more than 6,000 brick-and-mortar stores, and Google’s suite of business software and cloud-computing services that help companies such as LinkedIn Corp. LNKD +3.14% and Snapchat Inc. run their Web services. He didn’t give sales figures.

Overall, Google’s second-quarter profit of $3.23 billion was up from $2.79 billion a year earlier. Including its Motorola unit, Google’s revenue rose by 19% to $14.11 billion in the second quarter.

Its head count was 44,777 at the end of June, down from 53,891 at the end of March primarily due to the layoffs at Motorola earlier this year.


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