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Google Results Show Struggle With Mobile

July 18, 2013 by Leave a Comment

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

Filed Under: Media Business Tagged With: , ,

RIM’s Delay Caused by Poor Performance, Analysts Say

January 3, 2012 by Leave a Comment

Shock because even RIM acknowledges that the new phones are vital to reversing its rapid loss of market share in North America. At the same time, analysts were skeptical about the company’s explanation that the delay stemmed from its decision to wait for a new, improved microprocessor.

Instead, many analysts say that both the new phones and RIM’s new operating system, BlackBerry 10, may have significant performance problems and are delaying the project.

“They can’t get the infrastructure and the operating system ready in time,” said Peter Misek, an analyst with Jefferies Company. Alkesh Shah, an analyst at Evercore Partners, agreed. “Waiting for the chipset is a contributing factor in a number of factors that led to the delay,” he said. “Creating the ecosystem for the phones is the bigger problem.”

Mr. Shah and several other analysts said that delays in the development of BlackBerry 10 and poor battery performance in prototype versions of the new phones were behind the decision to further delay production until faster, smaller and more power-efficient chips became available in late 2012. Those delays made it impossible for RIM to begin selling the new phones early in 2012, as it first promised.

“One of the problems is the delay in the BB 10 software and that may have led to the selection of chips that caused the most recent delay,” said Rod Hall, an analyst with JPMorgan Chase.

While the analysts’ skepticism is partly based on speculation, it has also been fueled by RIM’s general loss of credibility with them. For more than a year, the company has been forced to repeatedly restate financial forecasts and failed to deliver some critical, new products on time.

“They don’t have a firm grasp of the issues and realities of bringing these phones to market,” said Colin Gillis, an analyst with BGC Partners. “There are not many believers right now,”

RIM has declined to identify the new chip. RIM also declined to comment directly about development problems with BlackBerry 10 or the battery life of the new phones.

It reiterated the earlier remarks of its co-chief executives, Jim Balsillie and Mike Lazaridis, that the delay was simply the result of its decision to wait for an improved chipset. “RIM made a strategic decision to launch BlackBerry 10 devices with a new, LTE-based dual core chipset architecture,” the company said, referring to a chip that supports a high-speed wireless service known as LTE that is now available in some parts of the United States. “As explained on our earnings call, the broad engineering impact of this decision and certain other factors significantly influenced the anticipated timing for the BlackBerry 10 devices.”

But it is no secret that RIM has been struggling with its new operating system, which is based on technology from QNX Software Systems, a company based in Ottawa that RIM acquired in 2010. The BlackBerry PlayBook, RIM’s money-losing tablet computer, was the company’s first product to use a QNX operating system. Despite the BlackBerry brand’s strong association with e-mail, it arrived in April 2011 without e-mail software or the ability to directly synchronize users’ address books and calendars.

Software that was supposed to remedy those issues and others has been delayed and is now promised for February.

Mr. Misek, said that RIM initially tried to merge, or thread, some of its current operating system with QNX to speed up the development timetable. But that proved unsuccessful, forcing RIM to create more software code from scratch than it initially anticipated.

Michael Morgan, the senior analyst for mobile devices at ABI Research, said that many problems with BlackBerry 10 came from making it work on RIM’s network, which moves all BlackBerry data, giving corporate e-mail a high level of security and all users lower wireless data bills.

To accommodate people with both BlackBerry phones and PlayBook tablets, RIM had to redesign security features on its network, which currently allow only one hand-held device access to any given user’s account, Mr. Morgan said.

“When you change something that low level in an operating system, it has ramifications which affect every function,” Mr. Morgan said. “I’m really shocked by a nine-month delay.”

Like many analysts, Mr. Morgan also says he thinks that RIM is struggling to bring the long battery life that has been a hallmark of BlackBerrys to the new phones.

While the QNX operating system has a reputation for reliability, he said, it has been mainly used in situations where power consumption is not a significant concern. Many touch-screen navigation and control systems in cars, for example, use QNX. But automobiles carry large batteries and alternators that recharge them.

When ABI’s researchers disassembled PlayBook tablets, Mr. Morgan said, they found several systems to reduce power consumption. He said, however, that those measures might not be enough for phones that will have much smaller batteries than the PlayBook.

“QNX is being applied now in a place it hasn’t been before,” he said.

Adding to the problem is RIM’s decision to make the new phones operate on LTE networks. Most current chips that operate on those high-speed networks have a reputation for quickly draining batteries.

While LTE networks are relatively scarce today, they are likely to be an important selling point for new phones a year from now.

Article source: http://feeds.nytimes.com/click.phdo?i=ea617b9d79b782a2ce5857bdf5f26931

Filed Under: Business News Tagged With: , ,

Google Reports Strong Earnings and Exceeds Expectations

October 13, 2011 by Leave a Comment

Google easily surpassed analysts’ expectations, reporting that revenue climbed 33 percent and net income rose 26 percent.

“I don’t love a lot of the things that Google’s doing, but their core business is a powerhouse,” said Colin W. Gillis, an analyst at BCG Partners. “When they bust out revenues above expectations, all the sins are forgiven.”

In after-hours trading, shareholders responded favorably to the earnings report, as shares rose 6 percent.

Still, others question whether Google’s search business will keep up its steady rate of impressive growth, particularly as more searches are done on mobile phones, where people are less likely to click on ads, and as advertisers spend more money on display and social ads, compared with ads in search.

“Google’s position is less secure than what many investors would like you to believe,” said Jordan Rohan, an analyst at Stifel Nicolaus who last week downgraded Google stock from buy to hold. “In the near term, Google still counts for half of online advertising revenues and has a blocking position in desktop search, but in the long term, that position may not help thwart competition in the social or mobile arenas.”

Virtually all of Google’s revenue comes from advertising, the vast majority from search ads. The company does not separately account for revenue from display, video or mobile ads.

Google reported net income for the period ending Sept. 30 of $2.73 billion, or $8.33 a share, up from $2.17 billion, or $6.72 a share, a year ago. Excluding the cost of stock options and the related tax benefits, Google’s third-quarter profit was $9.72 a share. Analysts had expected $8.74 a share.

The company said revenue was $9.72 billion, up from $7.29 billion in the year-ago quarter. Net revenue, which excludes payments to ad partners, was $7.51 billion, up from $5.48 billion, above analysts’ expectations of $7.2 billion.

“We had a great quarter,” said Larry Page, Google’s chief executive, in a statement. He highlighted the popularity of Google+, its new social network and Facebook competitor, which he said now has 40 million users. “People are flocking into Google+ at an incredible rate and we are just getting started!”

Google so far seems to be sheltered from the economic doldrums that have hurt other Web sites and publications that rely on advertising. In the past, it has been protected from swings in ad budgets because during hard times, advertisers often turn to search ads because it is easier to track their effectiveness.

Clicks on ads on Google and other Web sites increased 28 percent over the same quarter last year and 13 percent over the second quarter this year, Google said. The amount that Google got paid for clicks increased 5 percent over last year, but decreased 5 percent over the second quarter of this year.

Despite the positive results, many analysts fault Google for making large bets in high-risk areas, like jumping into hardware manufacturing with its $12.5 billion acquisition of Motorola Mobility.

“We’re still skeptical on the deal,” said Mark S. Mahaney, an analyst at Citi. “There’s a lot of risk. Maybe the counterargument is it’s worse not to take the risk, but it will be very hard to become a hardware company for a search and advertising company.”

Analysts also criticize Google’s spending on aggressive hiring. In the third quarter, it hired 2,585 people, up from 1,526 new people in the year-ago quarter, bringing the total to 31,353.

Such worries — along with concerns about continuing antitrust investigations, competition from Facebook and deteriorating economic conditions — have caused Google’s share price to drop 8 percent this year.

Article source: http://feeds.nytimes.com/click.phdo?i=4737b763fce38dff4f781c52ea56e132

Filed Under: Business News Tagged With: , ,