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Google’s Quarterly Results Show Its Continuing Struggle With Mobile Advertising

gg7-18In the court of Internet advertising, sometimes it’s hard to be the king.

Thursday’s earnings release for the second quarter, which ended in June, provided more evidence of this problem. The price that advertisers pay each time someone clicks on an ad — or “cost per click,” in Google talk — dropped 6 percent from the year-ago quarter, largely because of the shift to increased mobile advertising. That is in line with Google’s two-year trend of declining ad prices. Google does not, however, break out mobile ad revenue from desktop ad revenue.

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Google's stock activity so far this year.

“The revenue opportunity is very, very high, but right now mobile does not monetize as well as other forms,” Nikesh Arora, Google’s chief business officer, said on a conference call with analysts.

It will no longer be the problem, however, of Mr. Arora, who is in charge of the company’s ad business. The company announced on Thursday that Mr. Arora planned to depart his position of the past decade for a new job at SoftBank, the Japanese telecommunications giant, as vice chairman.

Omid Kordestani, a longtime Google employee and senior adviser to Larry Page, Google’s chief executive, will fill Mr. Arora’s old position for the time being, according to a company statement.

“There is nothing Omid doesn’t know about Google, our customers and partners, and I know that under his leadership the team will excel,” Mr. Page said in a post on his personal Google Plus page.

Google’s revenue for the quarter was $15.96 billion, an increase of 22 percent over the year-ago quarter. Net revenue, which excludes payments to the company’s advertising partners, was $12.71 billion, up from $11.1 billion last year. Analysts expected gross revenue of $15.6 billion.

Net income in the second quarter rose nearly 6 percent to $3.42 billion, or $4.99 a share. Excluding the cost of stock options and the related tax benefits, Google’s profit was $6.08 a share. Analysts had expected $6.23 a share, according to data compiled by Bloomberg.

Shares of Google’s stock rose about 1 percent in after-hours trading to $589.25.

Despite Google’s continuing mobile dilemma, its advertising competitors are still small in its rearview mirror. Google accounted for nearly 32 percent of online global ad spending in 2013, according to estimates from eMarketer. Facebook is in second place, accounting for nearly 6 percent of 2013’s $120.05 billion online global advertising market.

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Google’s campus in Mountain View, Calif. On Thursday, Google reported higher revenue and profit for the second quarter. Credit Marcio Jose Sanchez/Associated Press

Mobile, however, is something that Facebook seems to have cracked. The social media giant accounted for almost 16 percent of mobile advertising dollars spent around the world last year, eMarketer estimates, up from 9 percent in 2012. Google dropped to a 41.5 percent share of the mobile ad market last year, down from 49.8 percent in 2012.

Google spent the first half of 2014 making one pie-in-the-sky acquisition after another. The company is spending billions to move into new industries that are unlikely to yield profits for decades.

In April, for instance, Google purchased Titan Aerospace, a drone-making company; two months later, Google snapped up Skybox Imaging, a satellite service, for half a billion dollars. In February, Google completed its acquisition of Nest Labs for $3.2 billion.

It is a series of long-term bets that are also being made by competitors — namely, Facebook — but they still give shareholders and analysts pause.

“There’s a little bit of concern in the markets that there’s some drunken spending going on,” said Mark Mahaney, an Internet analyst with RBC Capital Markets.

Google does not feel pressured to see immediate returns on some of its investments — especially when the company is sitting on $61.2 billion in cash reserves.

“We set up our governance a bit like a V.C. model,” said Patrick Pichette, Google’s chief financial officer, in a conference call with analysts on Thursday. For projects like Google’s self-driving cars, it could take “half-decades, or sometimes longer” until the company expects to see any profitable returns on its investment, Mr. Pichette said.

Mr. Pichette also cited other areas in which Google, which reported $2.65 billion in capital expenditures over the second quarter, has reinvested its cash hoard. This included expanding the data centers Google has built, owned and operated, as well as buying additional real estate in the Asia-Pacific and European markets.

The company also added about 2,200 employees to its ranks, bringing the overall number to just above 52,000.

Some long-term investments, however, are starting to yield returns. Over the last quarter, Google sold one million of its Chromebook laptops — the low-cost, cloud-based notebooks that run almost entirely on Google’s suite of Web applications — to schools.

 

(Article and body image via NY Times)

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