Robert Hof, Contributor
I cover the collision of advertising and the Internet.
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1/30/2014 @ 4:29PM |1,672 views
Blame Motorola And Mobile: Google Profits Fall Short Of Forecasts Despite Better-Than-Expected Revenues
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Buoyed by new kinds of ads in the holiday quarter, Google GOOG +2.55% posted slightly better-than-expected fourth-quarter revenue growth of 17%, but profits came in below forecasts thanks to falling ad prices and continued losses from its now-jettisoned Motorola Mobility Motorola Mobility unit.
The search giant earned a profit of $12.01 a share before stock compensation expenses–under expectations of $12.26 a share–on a slightly higher-than-expected 17% rise in revenues, to $16.9 billion. Net profit was $3.4 billion, or $9.90 a share. Without currency fluctuations, Google revenues would have been up 23%.
Google’s shares were hovering around flat to up or down a fraction in extended trading immediately after the earnings announcement. The stock had risen 2.6% in today’s trading, to about $1,135.
Update 2:30 p.m. Pacific: After the analyst conference call, shares are now up 4%. If the rise holds up on Friday, that will produce another record high of more than $1,180 a share. Investors clearly liked what they heard on the call. Check out the highlights below.
The earnings are almost an anticlimax given Google’s big news recently. On Wednesday, it announced it’s unloading most of Motorola Mobility for $3.1 billion, and earlier in the month, it acquired smart-home products company Nest for $3.2 billion. The results, weighed down chiefly by Motorola’s losses, make it all the more clear why Google is parting with the company it bought three years ago.
Ad prices measured per click fell 11% from a year ago following a third-quarter drop of 8% in the third quarter. Paid clicks rose 31%. Those two numbers have been diverging more and more, but the upshot is that growth in paid clicks is outpacing even the accelerating decline in prices.
Investors have been concerned about the impact of lower mobile-ad prices as more advertisers opt to pitch people on smartphones and tablets instead of on computers. It wasn’t immediately clear what the impact of greater mobile ad spending was on the quarter, but investors are assuming the price drop is the result. Cillian Kieran, founder and CEO of the digital ad agency CKSK, says that it’s clear Google hasn’t yet found a consistent way either to make search ads compelling on mobile devices or to come up with new ad formats that could reverse the falling prices.
Google has contributed to the advertiser move to mobile. Its “Enhanced Campaigns” initiative begun nearly a year ago essentially forced advertisers to buy desktop and mobile ads together, not separately. While the assumption was that this would raise mobile ad prices, or cost per click–and it might have in some cases–clearly it hasn’t done so across the board. Indeed, some agencies have found ways around it, says Jared Belsky, president of digital agency 360i. “It hasn’t led to CPC inflation,” he says.
A new type of online ad that allows search advertisers to add images such as a product photos, called Product Listing Ads, may be boosting ad prices. In a report released Wednesday, Adobe said PLA price per click rose 80% in the fourth quarter from a year ago. “Marketers went crazy over buying PLAs,” says Tamara Gaffney, principal analyst with Adobe Digital Index. But the ads, which run on the Web, clearly weren’t enough to influence mobile ad prices much.
CEO Larry Page no longer plans to be on the conference call, so we’ll have to settle for his canned statement: ”We ended 2013 with another great quarter of momentum and growth. Google’s standalone revenue was up 22% year on year, at $15.7 billion. We made great progress across a wide range of product improvements and business goals. I’m also very excited about improving people’s lives even more with continued hard work on our user experiences.”
You can view the webcast of the call on Google’s YouTube investor channel (and through the window below), and earnings slides are up too.
And the call is underway, with Chief Business Officer Nikesh Arora and Chief Financial Officer Patrick Pichette.
Pichette is up first since Page is “busy running the company.” He’s going over the numbers you’ve seen, so I’ll just post the few significant ones not already noted.
“Other” revenues nearly doubled, to $1.7 billion, thanks largely to hardware sales, such as its Nexus lines of smartphones and tablets and its Chromecast TV device, and its Play Store apps.
Arora goes over the business stuff. Performance was strong in automotive, retail, and CPG segments. What’s driving growth? Google’s core performance ads, mostly search; brand ad progress; and ad tech platforms such as its DoubleClick ad placement systems.
On performance ads, that is, ads bought by direct marketers to get clicks and fairly immediate sales: He says the strength is being driven by better measurement to determine the impact of search ads on ultimate sales or other actions, no matter what device they ultimately happened on.
He says there’s great momentum on Product Listing Ads, the ads introduced early last year with product images.
On brand ads: YouTube is obviously a big driver. Another key is new, more creative ad formats such as Engagement Ads on its ad network, that offer more interaction potential. Not least, Google’s push to measure ads based on whether they were actually viewable is resonating with brands, he says.
Blame Motorola And Mobile: Google Profits Fall Short Of Forecasts Despite Better-Than-Expected Revenues
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On ad tech: Google’s DoubleClick ad exchange, a stock-market-like system, is attracting more advertisers and publishers, he says.Now to the main event, the analyst Q&A. I’ll just mention the highlights, especially on the ad side. Shares are now up about 1% at 1:50 p.m. Pacific.
Q: What’s up with Nest? Pichette says Nest and Google share a common vision–that technology should do the hard work so people can get on with things.Q: What growth are you seeing in YouTube ad revenues? Arora: YouTube is clearly the key player in our brand story.
Q: Why did Google agree to use Nielsen’s Online Campaign Ratings measurement system rather than continue to use its own? Arora: Traditional measurement has been limited and after the fact, so there’s a lot of opportunity for better metrics. This is table stakes, a comfort factor for advertisers.
Q: What’s the opportunity for app installation advertising? Arora: We’ve had solutions for this and we continue to work hard where else we can introduce more of these.
Q: How is Google trying to take advantage of new forms of ad targeting beyond cookies? Arora: Too early to tell.
Q: Explain the Motorola sale to Lenovo? Pichette: This is a great transaction where everybody wins. Lenovo provides scale. Motorola has really strengthened the Android system. We continue to innovate and be committed to hardware, like Google Glass
Q: How has the Google Express shopping initiative done? Arora: We see our role to enable the entire ecosystem of retailers online and offline to get goods and services to customers as fast as possible with the least friction. Our product initiatives like Product Listing Ads and delivery are aimed at this. It will take time and great execution.
Q: How is Enhanced Campaigns doing? (This program encourages, or forces, search ad buyers to buy ads on desktop and mobile devices at the same time) doing? Arora: We’re very happy with the progress, fully up and running around the world. Our thesis has proved right. He says Google believes the reduced complexity for many advertisers has increased sales incrementally.
Q: Opportunity in local ads? Arora: We are experimenting with new ad formats in Google Maps. But it’s not just about ads, it’s about location. You can use that as a filter to provide much more relevant advertising.
Q: Why not more pro content like NFL on YouTube? Arora: We’re very happy with growth at YouTube. We talk to content providers large and small. Can’t comment on a particular piece of content, but we would welcome any kind of content on YouTube … as long as there’s a business model to support it.
Q: Is use of Nielsen’s OCR capturing more brand advertising? Arora: We are seeing measurement as table stakes for brand advertisers. Basic entry metrics but hope this market will evolve to more sophisticated metrics to see the impact of this advertising on your brand.
Q: Any plans to do something with the mounting cash pile, now at $50 billion? Pichette: It’s a strategic asset, defensive and offensive. Nothing new to announce.
Q: How do you see social platforms like Google+ complementing search and getting more advertising from TV and offline? Arora: Every piece of advertising becomes digital. We’re still in the early days of advertising moving over (from traditional channels). Google+ is part of that. Key is not overloading people with ads.
