Google (GOOG) reported revenue rose 36 percent and profit
increased by nearly 7 percent in the final quarter of 2012, beating Wall
Street's expectations for profit but apparently falling short of some
analysts' estimates for sales.
Shares rose in after-hours trading, however, as Google reported a slower rate of decline in the average price that advertisers pay when users click on their ads -- which analysts believe may be a sign that businesses are starting to see the value in mobile advertising.
Google said it earned $2.89 billion in net
income on revenue of $14.42 billion, or $11.34 billion in revenue after subtracting commissions paid to advertising partners. Earnings per share amounted to $8.62 or $10.65 after excluding one-time charges.
In a statement, Google CEO Larry Page said the company had a strong fourth quarter. Referring to Google's total sales for the year, he added, "we hit $50 billion in revenues for the first time last year -- not a bad achievement in just a decade and a half."
Analysts on average were expecting Google to report earnings of $8.48 a share, or $10.52 a share excluding one-time charges, on revenue of $12.36 billion after subtracting commissions, for the quarter that ended
Dec. 31, according to a survey by Thomson Reuters.
Google said its revenue, before subtracting commissions, would have been $15.24 billion if it included sales from the TV set-top controller division of Motorola Mobility, which Google acquired last year. That made it difficult to compare Google's figures with analysts' projections: The company had issued a rare note to analysts last week, advising them to reduce their revenue projections by excluding sales from the TV unit, because of accounting rules triggered by a recent agreement to sell the TV unit to another company. In response, some analysts lowered their estimates, while others did not.
Google's advice about lowering estimates came after the company fell short of Wall Street expectations for its last quarterly report in October, as earnings declined in part because of an operating loss in the Motorola business. Google's stock price plunged in the wake of that Oct. 18 report, which also confounded many investors because a contractor mistakenly released the numbers ahead of schedule, while regular trading was still in session.
In the weeks after that report, Google shares lost nearly 12 percent of their value, falling from $755.49 to $667.12 in early November. But the stock has since regained some of that ground. Shares closed Tuesday at $702.87.
Meanwhile, analysts were watching closely for signs of a continued decline in the price that advertisers are willing to pay Google for each time a user clicks on their ads, as determined by an automated bidding process. While Google has downplayed that trend, some analysts believe it's related to a corresponding increase in people who use Google's services on mobile devices.
To some, that suggests advertisers are paying less for messages on mobile screens, in part because they're not sure if those mobile ads are as effective as traditional web ads.
Google said its average "cost-per-click" in the fourth quarter was down 6 percent from a year ago, but it rose 2 percent from the third quarter of 2012 -- which analyst Josh Olson of the Edward Jones investment firm said was a sign that the trend may be turning around. If the prices continue to improve, he added, "we can see there's light at the end of the tunnel."
The mobile trend has also been a challenge for other Internet companies, including Facebook, which has been working feverishly to develop new advertising formats for mobile devices. But some analysts believe Google will eventually benefit from the trend, as more advertisers and consumers become used to mobile ads.
Google's Android software has become the leading operating system for mobile gadgets, Wells Fargo analyst Jason Maynard noted in a report this week. He added, "this bodes very well in the long run for Google, as we think mobile monetization is a when, not if, issue."
Meanwhile, analysts have been eager to hear about the financial impact of several new products that Google has introduced in recent months. These include a new program requiring merchants to pay for listings on Google's online shopping service, along with new Google Maps and voice-enabled search apps for Apple's (AAPL) popular iPhone and iPad devices.
Although it came too late to affect the December quarter's results, Google also recently resolved a long-running antitrust investigation by the U.S. Federal Trade Commission, by agreeing to relatively minor concessions. Most analysts say the outcome will have little negative effect on Google's business, but some are concerned that a similar investigation by European authorities could still lead to more extensive changes or restrictions.
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