Google Surges With YouTube, Mobile Ads, Cost Control

For Google, mobile ads are paying off better than expected, and expenses declined a bit.
10 Wildest Google Street View Adventures
10 Wildest Google Street View Adventures
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Google shares surged 15% on Friday, July 17, after the company reported stronger earnings than analysts expected, the result of growing revenue from YouTube and from mobile ads, as well as greater attention to costs.

The company reported $17.7 billion in revenue, representing 11% growth year-over-year, or 18% on a constant currency basis. Net income (non-GAAP) amounted to $4.8 billion, or $6.99 per share.

The growing importance of mobile advertising has been a source of concern for Google investors and observers of the company. Their worry is that Google's longstanding dominance in desktop search won't translate to mobile devices.

CFO Ruth Porat and SVP Omid Kordestani both addressed that issue in a conference call for investors.

"Our strong revenue growth in the second quarter, notwithstanding the adverse effects of the strong US dollar evidences the health of our core search business, most notably mobile, complemented by growth in YouTube and programmatic advertising," said CFO Ruth Porat in a conference call for investors.

With regard to YouTube, Porat cited the improved quality of TrueView video ads and the growing number of people viewing those ads as an opportunity for the company. She noted that the amount of time people are watching YouTube increased 60% year-over-year. Watch time on mobile has doubled since a year ago.

One of the issues facing Google is that the content in native mobile apps isn't visible to Google's search engine. And that lack of visibility prevents Google from guiding searchers to app-based information when it's relevant to queries.

Google, like Apple and Facebook, has been urging developers to expose app content through what's known as deep linking.

Kordestani said Google has been making progress in this area.

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"We now have 50 billion links within apps indexed, and 25% of signed-in Google searches on Android now return deep links, taking users right to content within an app, or to a link so they can install it," Kordestani said. He also noted that Google has started showing deep-linked content in search results on iOS devices.

Investor optimism was further buoyed by Google's attention to costs. After years of investment in data centers, research, and people, Google is minding its expenses more closely. Expenses as a percentage of revenue declined 1% from Q1. Porat attributed lower capital expenditures to "a bit of a digestion period after an extended period of investments in both data centers and the requisite machine deployment."

While Google continues to regard these expenditures as strategic, Porat said Google is taking a more disciplined approach to its spending. At the same time, eyeing costs more closely doesn't mean expenses won't rise. Porat noted that headcount, for example, tends to increase in Q3 when new graduates often start work.