July 6, 2022

Google’s Earnings Beat Expections, but Revenue Does Not

The company reported first-quarter financial results Thursday that exceeded analysts’ expectations for profit, yet missed their expectations for revenue. Analysts blamed Google’s mobile business for the weakness, as consumers rapidly shift their computer use to mobile devices. Even though Google is even more dominant on smartphones than it is on computers, mobile ads cost less, which is a threat to search advertising revenue, Google’s lifeblood.

Net income in the first quarter rose 16 percent to $3.35 billion, or $9.94 a share. Excluding the cost of stock options and the related tax benefits, Google’s profit was $11.58 a share, up from $10.08 a year ago. Analysts had expected $10.69 a share.

The company reported first-quarter revenue of $13.97 billion, an increase of 31 percent over the same period last year. Net revenue, which excludes payments to the company’s advertising partners, was $11.01 billion, up from $8.14 billion. Analysts had expected net revenue of $11.3 billion.

“We had a very strong start to 2013,” Larry Page, Google’s chief executive, said in a statement. “We are working hard and investing in our products that aim to improve billions of people’s lives all around the world.”

Despite Google’s mobile challenge, investors who want a piece of the mobile revolution have been fleeing Apple and turning to Google instead. Over the last 12 months, Google’s share price has climbed 26 percent while Apple’s has fallen 36 percent as the company faces flat profits, slowing growth and growing competition from Google’s Android phones.

“Google replaced Apple in tech portfolios as the comfort food trade in mobile,” Jordan Rohan, an Internet analyst at Stifel Nicolaus, wrote in a research note.

Shares climbed 1.7 percent in after-hours trading Thursday after closing at $765.91 before the earnings news was released.

Google will not reveal the number of searches people perform on desktop computers or on mobile devices, or the amount of money Google makes from each of those searches. Instead, investors rely on a metric known as cost per click, or the price that advertisers pay Google each time someone clicks on an ad.

In the first quarter, that price declined 4 percent from both the previous quarter and the previous year, falling for the sixth consecutive quarter, and declining more than analysts had expected. They attribute that to the increase in less expensive mobile ads. Mobile ads cost about half as much as desktop ads, and receive only a quarter of the clicks that desktop ads do, according to BGC Partners.

Google has been scrambling to fix the mobile problem. In February, it announced the biggest change to its advertising program, called enhanced campaigns. Now advertisers, by default, will have to buy ad campaigns on smartphones and tablets when they buy ads on desktop computers. The program, which is scheduled to be fully in effect this summer, is expected to increase mobile ad prices because there will be more demand, something that pleases shareholders but frustrates advertisers.

Google has also benefited from another new type of ad, called product listing ads, which retailers are now required to buy if they want to appear in Google’s comparison shopping service. These ads now account for 17 percent of search ad spending on Google, and people click on them about 25 percent more than they do on text ads, according to Adobe, which manages $2 billion in online ad spending.

Google’s ad business remains the strongest on the Web. It is the leader in online search, display and mobile advertising markets, bringing in 41 percent of all digital ad revenues, according to eMarketer. On mobile devices, it earns 55 percent of ad dollars and 93 percent of search ad revenue, though it trails Facebook in mobile display ad revenue.

Article source: http://www.nytimes.com/2013/04/19/technology/googles-earnings-beat-expections-but-revenue-does-not.html?partner=rss&emc=rss

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