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Google Results Show Struggle With Mobile

Despite a range of efforts by Google, the riddle remains unsolved, its financial report Thursday revealed.

Google reported second-quarter results that missed analysts’ expectations for revenue and profit. They showed that its desktop search business continues to slow and ad prices continue to fall as it struggles to make as much money on mobile devices.

The report was particularly incongruous given how Google’s share price climbed 27 percent this year.

It is a vexing problem for every company that has generated revenue through advertising, be it a century-old magazine with a mobile app or a new Web site aggregating the news. Mobile ads do not command the premium that Web advertising does (and Web ads do not make as much as print ads).

Colin W. Gillis, a technology analyst at BGC Partners, wrote a haiku before the earnings announcement: “The results should be/ pretty as a picture to/ justify the stock.”

They were not. Shares, which fell 1 percent ahead of the report on Thursday, fell another 4 percent in after-hours trading.

“One of the reasons why people like Google is you can look forward and see what they’re doing with Glass and laying fiber and driverless cars and Chrome, chasing after new revenue streams,” Mr. Gillis said. “But those are still pretty far away. Google’s core business is all about advertising and clicks, and the core business is absolutely maturing.”

Mobile ads, he added, are inexpensive yet “overpriced because the conversion rates are so low.”

“It’s still too hard to transact on a phone,” Mr. Gillis said.

Google had seemed to have finally found a solution to the riddle, by making the biggest-ever change to its AdWords advertising product. The new program, called enhanced campaigns, which was introduced in February and will be mandatory for all advertisers on Monday, gives advertisers less choice about advertising on mobile devices by automatically including desktop, tablet and cellphone ads for all campaigns. Advertisers can choose not to buy cellphone ads but are required to buy tablet ads.

Google says that this simplifies the process for advertisers and makes it easier to reach customers who use devices indiscriminately. More important than the type of device, the company says, is whether someone is at a desk or on the sofa, in the mood to shop or eat.

But it also means that the price of mobile ads, which has been about half that of desktop ads, will most likely increase. Google’s ads are sold at auction, and one reason mobile prices have been low is that there has been less demand. Enhanced campaigns should change that.

For example, the cost per ad click, known as C.P.C., for clients of the Search Agency, a search ad firm, rose 22 percent in the quarter, largely because of Google’s ad-buying changes. It was the first time that tablet ads cost more than those on desktops, and advertisers increased spending on smartphones 25 percent, the most of any device category.

“There used to be a discount you would get for going after traffic on tablets instead of desktops,” said Keith Wilson, vice president for agency products at the Search Agency. “Now that is disappearing. That is what is going to drive up C.P.C.’s in the mobile space. This has been a catalyst for prioritizing mobile.”

But it was too early for the results of the new ad program to show up in Google’s financial report, company executives said Thursday. The price that advertisers pay when Google users click on their ads decreased 6 percent from last year and 2 percent from the previous quarter, declining for the seventh quarter in a row and at a steeper annual rate than in the previous quarter.

Mobile ad pricing is “one of the many factors at work” affecting click prices, said Nikesh Arora, Google’s chief business officer. Google is in the early stages of enhanced campaigns and it will most likely take a year for the results to become apparent, he said. He added that another important metric at Google, the number of clicks on ads, is up 23 percent over last year, partly because of increased mobile use.

Larry Page, Google’s chief executive, said that six million advertisers had already switched to enhanced campaigns. American Apparel, according to Google, doubled its mobile conversion rate with the new ads, and MMs, the Mars candy brand, increased it by 41 percent.

In addition to enhanced campaigns, Google is doing other things to improve its mobile offerings and its profits from mobile ads. It has been encouraging Web sites to improve their mobile versions, and last month it said Web sites without easy-to-use mobile versions could fall in search rankings. And it introduced its product listing ads, for shopping, to mobile devices.

Google reported second-quarter revenue of $14.11 billion, up 19 percent from $11.8 billion a year ago. Net revenue, which excludes payments to ad partners, was $11.1 billion, up from $9.2 billion. Net income rose to $3.23 billion, or $9.54 a share, from $2.79 billion, or $8.42 a share. Excluding the cost of stock options, Google’s second-quarter profit was $9.56 a share.

Analysts had expected net revenue of $11.33 billion and earnings, excluding the cost of stock options, of $10.78 a share.

Adding to the disappointing results was a $342 million operating loss at Motorola Mobility, which is expected to introduce a new phone, the Moto X, this summer.

As shareholders and analysts wait for Google to find the next product to reignite revenue growth as the core search business slows, Mr. Page acknowledged the challenges of building new products that reach people on the same scale as search.

“It’s pretty easy to come up with ideas,” he said. “It’s pretty hard to make them real and get them to billions of people. And that’s to me what’s so exciting.”

Article source: http://www.nytimes.com/2013/07/19/technology/google-misses-expectations-for-revenue-and-profit.html?partner=rss&emc=rss

DealBook: Xstrata Board Supports Glencore’s Revised Offer

5:13 a.m. | Updated

The board of the mining company Xstrata announced on Monday that it was backing a revised takeover bid from the commodities trader Glencore International, putting the $90 billion merger back on track.

To sidestep shareholder opposition to executive bonuses worth potentially more than $200 million, Xstrata will now ask investors to support the deal even if they do not agree with the proposed incentive plan.

The change comes after Glencore raised its takeover bid in September, offering 3.05 of its shares for each Xstrata share.

In exchange, however, Glencore had proposed that its chief executive, Ivan Glasenberg, should take over the unified company six months after the merger was completed. Under the original terms of the deal, Xstrata’s chief, Mick Davis, and his management team were set to retain control.

Xstrata confirmed on Monday that Mr. Davis, who will now not participate in the proposed executive incentive plan, would step down from his post after six months if the merger was approved, though Xstrata would still retain a majority of the combined group’s board seats.

The changes in the new offer raised the possibility that top mining executives would depart, leaving the combined company without veteran leaders in its core business. Mining is expected to account for 84 percent of the unified company’s operating profit, based on last year’s earnings.

A major hurdle to winning shareholder support has been bonuses that Glencore and Xstrata had been negotiating to retain top executives. The payouts — worth more than $200 million — have angered several major shareholders.

Some institutional investors, including BlackRock and Legal and General, have been said to oppose the retention payments as too extravagant. That has prompted Xstrata to revise the bonus packages to more closely link them to performance targets, though they remain basically the same size.

In a vote to be put to Xstrata shareholders in November, the company will now offer investors three options when deciding on the deal.

Shareholders can vote in favor of both the merger and the retention bonuses, back the proposed combined group without supporting the incentive plan or oppose the merger altogether.

Xstrata’s board has recommended that shareholders support both the merger and incentive plan.

A vote on the merger will need the support of at least 75 percent of Xstrata’s eligible shareholders to pass, while a decision on the retention bonuses will only need the backing of 50 percent of investors.

“We have decided to decouple the resolutions to approve the merger from the resolution to approve the revised management incentive arrangements,” Xstrata’s chairman, John Bond, said in a statement on Monday. “This will enable shareholders to vote in line with their convictions.”

Shares in Xstrata rose 3.1 percent in morning trading in London on Monday, while stock in Glencore fell less than 1 percent.

The decision by Xstrata’s directors to proceed with their recommendation keeps afloat a merger that would create a behemoth in the world of mining and minerals.

The proposed transaction, first announced in February, would unite Glencore, a giant commodities trading house, with Xstrata, its longtime mining partner.

Together, the two would create an international mining company with significant physical assets and an enormous trading operation that has invaluable insights into global demand for minerals.

The talks have drawn in many of London’s top deal makers, generating big fees for the bankers involved if the transaction is approved. Citigroup and Morgan Stanley are advising Glencore, while Deutsche Bank, JPMorgan Chase, Goldman Sachs and Nomura are advising Xstrata.

But the talks have been bogged down for months over questions about who would lead the combined company and how much it would cost to retain important Xstrata executives.

One wild card remains: the sovereign wealth fund Qatar Holding.

The fund, the second-biggest shareholder in Xstrata after Glencore, has kept silent on the revised takeover bid. An adviser to Xstrata said previously that the fund was less concerned about the payouts than about retaining top company executives. A spokeswoman for Qatar Holding declined to comment on Monday.

With its 12 percent stake, Qatar Holding is seen as a crucial component to winning approval of any deal. The sovereign wealth fund has said it will wait until Xstrata makes its announcement before making its own decision.

“The key risk of a deal failure rests once again with Qatar Holding,” Ash Lazenby, an analyst at Liberum Capital in London, wrote in a note to investors on Monday, adding that the proposed merger might still fail if the Middle Eastern sovereign wealth fund did not support the executive incentive plan.

A version of this article appeared in print on 10/01/2012, on page B3 of the NewYork edition with the headline: A Merger In Mining Said to Be On Track.

Article source: http://dealbook.nytimes.com/2012/09/30/xstrata-board-said-to-support-glencores-revised-offer/?partner=rss&emc=rss

Google Results Show Struggle With Mobile

DealBook: Xstrata Board Supports Glencore’s Revised Offer

A version of this article appeared in print on 10/01/2012, on page B3 of the NewYork edition with the headline: A Merger In Mining Said to Be On Track.

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