Google's Revenue Climbs, but Search Ad Growth Slows
Google is still pulling in money hand over fist, but in its latest earnings report there were signs that its ultra-profitable business in search advertising was starting to slow.
Although the company's revenue for the third quarter increased 20 percent from the same period last year, the cost per click - the average price the company is paid each time a user clicks on ads - was down 2 percent compared with the quarter a year ago, and was flat from the second quarter.
The cost-per-click measurement has fallen for several years as people spend more time with mobile phones, which have smaller screens and are harder to place ads on. Google does not release figures for mobile ad revenue separately from desktop ad revenue.
Paid clicks on advertisements increased 17 percent in the quarter compared with a year ago and 2 percent from the second quarter. But in the second quarter, they had increased 25 percent. The rate of increase in this important metric is slowing.
That is a concern for investors because even though Google has expanded beyond its core search business, nothing has been as profitable as that original golden goose in search.
'Google's core search business is the best Internet business model ever created,' said Jordan Rohan, founder at Clearmeadow Partners, a strategic advisory firm focused on Internet companies. 'Every other business Google is in looks pedestrian by comparison.'
Google's revenue was $16.52 billion in the third quarter. Net revenue, which excludes payments to the company's advertising partners, was $13.17 billion, up from $10.78 billion. Net income in the third quarter was $2.81 billion, down from $2.97 billion.
Excluding the cost of stock options and the related tax benefits, Google's profit was $6.35 a share, compared with $5.63 in the third quarter of 2013.
Over all, the earnings were somewhat short of expectations, and the stock was down about 3 percent in after-hours trading.
Over the past year Google has begun several programs to nudge advertisers to buy more mobile ads. The most significant, Enhanced Campaigns, forced advertisers to think about mobile by having them bid on ads across several devices at once instead of creating different campaigns for different devices.
In almost every way, Google has become a victim of its own success. Regulators are challenging its dominant market share in search. Analysts bemoan the fact that the explosive growth in smartphones, where ads are less expensive, has eroded Google's average ad price.
Some of Google's biggest problems are in Europe, where it is being buffeted by slow growth, unfavorable currency movements and a range of tax and regulatory problems that inspired a top German official to call for the company to be broken up.
Google's long-running efforts to settle accusations by the European Commission that the company's search results favor its own sites over those of its competitors have been delayed by the objections of powerful European publishers and United States rivals including Microsoft and Yelp.
Google has dispatched its chairman, Eric E. Schmidt, to mount a public relations offensive. This week, at a Berlin speech that cited various inventors along with Mark Twain and Jennifer Lopez, Mr. Schmidt praised the success of Google's competitors but suggested that their antitrust complaints were an impediment to global technological progress.
Several European Union countries including France, Germany and Britain have questioned Google's tax structure in Europe.
Meanwhile, Ireland's government said it would close the so-called double Irish provision that allows a number of companies, including Google, to reduce tax payments by making royalty payments for intellectual property to a separate Irish-registered subsidiary that, though incorporated in Ireland, typically has its home in a country that has no corporate income tax.
On top of all that, Google has had to worry about Europe's 'right to be forgotten,' a ruling by the European Union's highest court that allows people to ask that links to information about them be removed from searches unless there is a public interest reason for keeping them. Google had removed 169,500 links as of last week.
Correction: October 16, 2014
Post a Comment for "Google's Revenue Climbs, but Search Ad Growth Slows"