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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