Google Misses Earnings As Ad Business Morphs

Google's online ad business is getting paid less per click, but CEO Larry Page is optimistic about the multi-screen mobile era.
Google I/O: 10 Key Developments
Google I/O: 10 Key Developments
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Google on Thursday reported $14.11 billion in revenue and $9.56 non-GAAP earnings per share for the second quarter of 2013, coming in short of what analysts anticipated.

Financial analysts expected the company to report revenue of $14.42 billion and earnings of $10.78 per share, based on an average of 28 analyst reports.

Google's stock, down 7.87 points for the day, plunged more than 47 points, or about 5%, in after-hours trading shortly after the company's earnings release. It then recovered about 10 points.

CEO Larry Page nonetheless characterized the quarter as "great," noting in a statement that Google's revenue was up 19% year-on-year. "The shift from one screen to multiple screens and mobility creates tremendous opportunity for Google," he said. "With more devices, more information and more activity online than ever, the potential to improve people's lives even more is immense."

[ What surprises does Google have in store? Read Google Chrome For iOS Promises Data Cost Savings. ]

That shift, however, is why Google's revenue hasn't been increasing as fast as it once did. Google is getting more paid clicks on its ads, but the value of each click is declining. The company said its average cost-per-click declined 6% compared to second quarter of 2012 and 2% over the first quarter of this year.

On Google's earnings call, CFO Patrick Pichette acknowledged that cost-per-click deflation could be attributed in part to the shift toward mobile devices, but he insisted other factors affect Google's performance and expressed confidence in the company's ad business. Also, Motorola's losses haven't helped.

Page reiterated the opportunity presented by the shift to a world of abundant computing, with multiple devices and screens. It is, he said, a different environment than the world of one operating system (Windows) and one device category (the PC) into which Google was born almost 15 years ago.

As if to underscore how the tech industry has changed, Microsoft, the prime beneficiary of the old paradigm, also reported disappointing earnings on Thursday. The company, which recently announced a reorganization plan, took a $900 million charge because its Surface RT tablet has not been selling as well as hoped. The overall decline in personal computers hasn't helped either.

Page cited the usual figures to demonstrate Google's growth. "We've now activated more than 900 million Android devices worldwide -- and we're lighting up over 1.5 million devices every day," he said. "Chrome -- even though only four years old -- has over 750 million users worldwide and growing."

Page insisted that there's "a ton of momentum around Chromebooks, which are growing fast and defying the more general decline in PC sales." Yet as in past earnings calls, he did not provide specific sales figures.

Stephen Baker, an analyst with NPD Group, last month said that in U.S. consumer channels, Chromebooks represent between 20% and 25% of the under-$300 notebook market, a segment that accounts for about 15% to 20% of the overall U.S. notebook market.

The rising adoption of Chromebooks in part is due to the expanding retail availability of the devices. As chief business officer Nikesh Aurora noted, Chromebooks are now available in more than 6,600 retail stores, including Walmart and Staples, about three times as many as at the beginning of the year.