Google results top Wall Street expectations
SAN FRANCISCO — For more than a decade, Google’s search ad business has seemed almost magical in its ability to mint money.
But the magic is beginning to wear off, as changing digital behavior on mobile phones and even on desktops threatens Google’s main business.
The company pleased analysts and shareholders when it announced better-than-expected third-quarter financial results Thursday. Still, the report revealed that, as its desktop search business matures, the price that advertisers pay when they click on ads has continued to fall.
“Google’s core desktop search business was probably the best Internet business ever created,” said Jordan Rohan, an Internet analyst at Stifel Nicolaus. “Every other business they’re in, whether it be mobile search or tablet computers or YouTube, just doesn’t look as good from a margin perspective.”
Google’s core business, selling ads on Google.com and other sites its owns, increased 22 percent year over year. It is a notable rate after four quarters of sub-20 percent growth, although still lower than the 35 percent growth rates of two years ago. The price, too, that advertisers pay each time someone clicks on an ad decreased for the eighth quarter in a row, according to data collected by BGC Partners. It fell 8 percent from the same period last year, largely because mobile ads cost less than desktop ones.
“Google makes 90 percent of its money in the Web world, and it’s in the wrong place,” said George Colony, the chief executive of Forrester Research.
Google reported third-quarter revenue of $14.89 billion, up 12 percent from a year ago. Net revenue, which excludes payments to ad partners, was $11.92 billion, up from $11.33 billion. Net income rose to $2.97 billion, or $8.75 a share, from $2.18 billion, or $6.53 a share. Excluding the cost of stock options, Google’s third-quarter profit was $10.74 a share.
The results exceeded the expectations of analysts, who had predicted revenue of $14.82 billion and earnings, excluding the cost of stock options, of $10.35 a share. Analysts said they had given more conservative estimates this quarter, because they had an increasingly negative sentiment about Google after several quarters in which its results did not live up to their expectations.
Shares jumped more than 6 percent in after-hours trading.
Included in the results was a $248 million operating loss at Motorola Mobility. Google has drastically cut costs at Motorola and introduced the Moto X phone, but its losses are expanding.