Ed Pilkington and Heidi Moore in New York 

Google’s first-quarter profits grow slower than expected

As company weathers difficult transition to mobile, earnings per share disappoint analysts and executives hype progress
  
  

Google reported a loss of earning at $15.4bn,
Google CEO Larry Page said the 19% year-on-year climb meant 'another great quarter'. Photograph: Justin Sullivan/Getty Images Photograph: Justin Sullivan/Getty Images

Google reported slower than expected growth in revenues on Wednesday as the company looked to push past rivals such as Apple and Netflix in the competitive advertising and mobile technology markets.

The company's profits grew a modest 2.9% in the first quarter of 2014, to $3.45bn, but it disappointed on a key metric of earnings per share. Analysts expected Google to earn $6.41 per share but the tech giant’s delivered only $6.27 per share.

Executives gave breathless updates of progress behind the scenes. Larry Page, Google’s CEO, said the 19% year-on-year climb in consolidated revenue, to $15.4bn, amounted to “another great quarter”, though investors seemed to disagree as the company’s stock fell 5% in after-hours trading.

“We got lots of product improvements done, especially on mobile,” Page said. “I'm also excited with progress on our emerging businesses."

Observers of Google’s performance at the start of 2014 were watching particularly closely to see how well it is weathering the stormy transition to mobile, where lower ad rates are impacting the bottom line. Paid clicks on ads served by Google sites as well as by networked sites increased by 26% compared with the first quarter of 2013, though declined by 1% on the last three months of last year.

Out of the overall revenues, the company paid $3.23bn in the first quarter to partners who brought traffic to Google’s sites. That reduced actual revenue to $12.2bn.

But impressive growth in clicks was countered by Google’s ongoing difficulties in sustaining average cost per click in the wake of the exodus of users to mobile devices. Average cost per click fell by about 9% year on year, though the company will draw some comfort in the fact that it held steady compared with the last quarter of 2013.

Nikesh Arora, Google’s chief business officer, admitted that “a whole lot of building blocks have to come into play before the gap can be closed” between mobile and desktop ad rates. But he predicted in the long run mobile would match and eventually exceed desktop averages, because of the added value that can be offered to advertisers through knowledge gleaned about the habits of mobile users.

“There is a finite time when these building blocks will come into place and convergence [in ad rates] will happen between mobile and desktop,” he said.

Though the 26% in paid clicks was a measure of the enduring health of online ads, this too was a disappointment. Analysts had expected the company to deliver 33% growth.

"Overall we think paid clicks remains the best indicator of a healthy ad ecosystem," Jefferies analyst Brian Pitz said in a note Tuesday before earnings. Pitz expected the company to deliver 28% growth in paid clicks.

There is evidence that Google is becoming a reliably international company. While its revenues in the US and UK were both up 14%, the company's international growth was up 25% to $7.2bn. That international portion accounted for 47% of the company's overall revenue, according to chief financial officer Patrick Pichette.

UK revenue of $1.58bn represented 10% of overall revenues in the quarter, down from 11% in the same period last year.

Google emphasised progress in staffing up initiatives that compete with Apple's stranglehold on mobile applications. Executives said the company paid out four times as much to developers in 2013 as 2012 on its entertainment app, Google Play. They also said 3,000 developers signed up during the past few weeks to work on its television technology, Chromecast, which competes with streaming services at Amazon, Apple and Netflix.

 

Leave a Comment

Required fields are marked *

*

*