Google Dinged by Nexus 6, Glass Disappointments - InformationWeek

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1/30/2015
11:06 AM
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Google Dinged by Nexus 6, Glass Disappointments

High R&D expenditures and botched Nexus 6 smartphone sales dent Google's fourth quarter numbers.

Google Project Ara: 8 Dev Conference Images
Google Project Ara: 8 Dev Conference Images
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Everybody craves prestige, but there are only so many prestigious positions to go around.

Google disappointed investors with its fourth quarter results, which it reported Thursday. Revenue and profits both climbed, but not as much as Wall Street expected. Further, the company took a hit on flailing initiatives including Google Glass and the Nexus 6 smartphone. Some are beginning to question Google's capacity for managing such a varied array of products and appeasing shareholders at the same time.

Google recorded $18.1 billion in revenue, a 15% increase over the year-ago period but short of analysts' forecasts of $18.5 billion. The company managed to increase profits 40% for the quarter to $4.8 billion. Google said the strong dollar sucked $541 million out of its revenue for the three-month period. Google raked in $66 billion in revenue for the entire year, which was up 19%. Yearly profits totaled $20.6 billion, up just 3%.

Google campus
Google campus.


(Image: Wikimedia Commons)

Google campus.

(Image: Wikimedia Commons)

The majority of Google's revenue -- $16.2 billion -- came from its ad business. One problem worrying investors, however, is the slowdown in ad growth. Paid clicks climbed 14% compared to the year-ago period, but managed to inch up only 11% compared to the third quarter. More troubling, the cost-per-click sank 3% from the third quarter and 3% for the entire year. Google can't charge as much for mobile ads and that contributed to the decline. In other words, growth and rates in Google's core business are both down.

[ Read Microsoft Office Arrives On Android Tablets. ]

Meanwhile, Google is spending money at an alarming rate. The company spent $13.7 billion on expenses during the fourth quarter. A lot of that went to large capital expenditures, such as buildings and its growing fiber build out. However, Google spend a significant chunk of it -- $2.8 billion -- on research and development. These projects include Google Glass, internet balloons, and self-driving cars.

Earlier this month Google said Glass was "graduating" to a new part of its business, but that's not the tone Google struck on the phone with investors Thursday. Google's chief financial officer Patrick Pichette said the company needed to "pause" from work on Google Glass and "reset" the business. That sounds much more like a failure than a graduation.

Then there's the Nexus 6 fiasco. Google underestimated demand for its Nexus smartphone for the third year in a row. The phone went on sale in November and earned mostly positive reviews. Too bad Google had "real issues" getting enough of the Motorola-made smartphones. Now, nearly three months later, supply and demand are still unbalanced. Google's Pichette admitted that the supply problems hurt its revenue for the quarter.

Google's side projects earn it a lot of media attention (who doesn't love self-driving cars?) but don't show any promise as far as generating real revenues for the company. The company seems to have lost its mojo in recent months. CEO Larry Page and co-founder Sergey Brin don't appear to be concerned, however, and will continue to fund projects they deem worth investing in.

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Eric is a freelance writer for InformationWeek specializing in mobile technologies. View Full Bio

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Gary_EL
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Gary_EL,
User Rank: Ninja
2/3/2015 | 2:58:50 AM
Re: Google is everywhere
And best of all, you don't have to be bothered with updates, because it's on the cloud, and they take care of it all for you, so you don't have to play junior systems manager at home. Now, if they just could come up with an operating system that you can download to your computer for those times that you don't have internet access ......
Li Tan
50%
50%
Li Tan,
User Rank: Ninja
2/3/2015 | 2:53:29 AM
Re: Google is everywhere
Google Apps are easy to use and proved to be essential for many people's daily work. We don't need to pay a cent for it, which is good. Especially I love Gmail and Google Calendar service.
Gary_EL
50%
50%
Gary_EL,
User Rank: Ninja
2/1/2015 | 11:14:02 PM
Google is everywhere
I use it to search, to store documents, to create documents, to collaborate with others and to get directions. It runs my tablet. They've certainly got my attention, but I, for one, have never paid them a penny, and yet they made almost $5 billion. Looks pretty good to me.
danielcawrey
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50%
danielcawrey,
User Rank: Ninja
2/1/2015 | 2:27:56 PM
Re: at least...
You have to at least give credit to Google for trying to do things outside of advertising. Sure, things like self-driving cars don't make the company money yet. But at some point, this seems like really useful technology that could be used to solve transportation problems. 

I get why Google is being criticized by its investors because they are all about the here and now. That makes it harder to innovate, but the company is still going to go this route. 
Susan_Nunziata
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50%
Susan_Nunziata,
User Rank: Strategist
1/31/2015 | 10:35:31 PM
Only on Wall Street
Could annual profits of $20.6 billion be considered a sign of doom.

Seems to me the important lesson here is that Google should stay away from the hardware business and stick to what it does best: Snarfing up as much information as possible about every human being on the planet.

 
mejiac
50%
50%
mejiac,
User Rank: Ninja
1/31/2015 | 5:42:05 PM
Re: Google: Too big to care
@asksqn,

I share your sentiment, Google has neven been a company to worry about it's performance, with a focus more on innovation and learning from trial and error.

In fact, very few company take the risks that Google takes with it's R&D expenditure. Apple I would say it's the closets, but they're very causious in the way the spend, since they don't want to raise alarms.

Google on the other hand is willing to push the envelop, and I bet you that what they learn along they way has a bigger payoff down the road.
asksqn
50%
50%
asksqn,
User Rank: Ninja
1/30/2015 | 5:19:24 PM
Google: Too big to care
I have to say that self-driving cars do not interest me.  Now that we got that out of the way - quite frankly speaking, I don't believe Google gives a toss as to how much it has disappointed Wall Street or the fact that it underestimated demand for the Nexus 6 for three years running or even as to whether its "pause" in Glass is being perceived as a failure rather than an improvement.  
Thomas Claburn
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50%
Thomas Claburn,
User Rank: Author
1/30/2015 | 5:09:36 PM
at least...
...it's cloud business is doing well.
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