Google's first-quarter earnings disappoint as advertising prices slip
By Michael Liedtke, AP
April 18, 2014, 12:31 am TWN
SAN FRANCISCO--Google's first-quarter earnings growth faltered as the Internet's most influential company grappled with a persistent downturn in advertising prices while spending more money to hire employees and invest in daring ideas.
The results announced Wednesday fell below analyst projections. Google's Class A stock shed US$17.10, or 3 percent, to US$546.80 in extended trading.
Although it remains among the world's most profitable companies, Google Inc. is struggling to adjust to a shift away from desktop and laptop computers to smartphones and tablets. The upheaval is lowering Google's ad rates because so far marketers haven't been willing to pay as much to pitch consumers who are squinting at the smaller screens on mobile devices.
Google earned US$3.45 billion, or US$5.04 per share, in the quarter. That was up 3 percent from US$3.3 billion, or US$4.97 per share, last year.
If not for costs covering employee stock compensation and other one-time items, Google said it would have earned US$6.27 per share. That figure missed the average analyst target of $6.36 per share, according to FactSet.
Revenue rose 19 percent from last year to US$15.4 billion.
After subtracting advertising commissions, Google's revenue stood at US$12.2 billion — about US$200 million below analyst projections.
Google's average rate for ads appearing alongside its search results fell 9 percent from last year. It marked the 10th consecutive quarter that the company's "cost-per-click" has declined from the previous year.
The erosion would have hurt Google even more if people hadn't been clicking on ads more frequently. The volume of activity is important because Google bills advertisers when people click on a promotional link. Google's paid clicks during the first quarter climbed 26 percent from last year.
As its ad prices sagged, Google's operating expenses shot up 31 percent from last year to US$5.3 billion. The rise included the addition of about 2,300 Google employees, the biggest three-month rise in the company's workforce since buying Motorola Mobility for US$12.4 billion nearly two years ago. Excluding the Motorola deal, it was the largest quarterly increase in Google's total employees since the summer of 2011 when an additional 2,500 people joined the company.
Google is in the process of selling Motorola to Lenovo Group for US$2.9 billion. Motorola lost US$198 million in the first quarter, extending a streak of uninterrupted losses under Google's ownership.
Some of the first-quarter increase in employees and operating expenses stemmed from Google's US$3.2 billion acquisition of high-tech home appliance maker Nest Labs, said Patrick Pichette, Google's chief financial officer.
The first-quarter results were further muddied by a recently completed stock split that created a new category of Class C shares, which hold no voting power. The split cut Google's per share earnings in half to reflect a doubling of the company's outstanding stock.
"It was a noisy quarter, but nothing to hit the panic button about," said Edward Jones analyst Josh Olson.
As has been the case for years, Google also is spending heavily on a variety of projects that have little to do with its main business of Internet search and advertising. Some of these ventures, such as Google's widely used Android operating system and Chrome browser, have paid off. Others, including Google's Internet-connected eyewear, driverless cars and Internet-beaming balloons, remain in testing stages.