MOUNTAIN VIEW -- Google (GOOG) reported a healthy increase in
first-quarter profit and sales on Thursday, amid signs the Internet giant is
making progress in its struggle to earn more money from mobile advertising.
The company's net income was $3.5 billion for the quarter ending March 31, up 16 percent from a year ago. Gross revenue rose 31 percent, to $13.97 billion, while revenue from Google's main business segments increased 23 percent, to $9.99 billion after subtracting sales by Google's new Motorola hardware unit and commissions paid to advertising partners.
While the numbers showed strong performance by Google's core advertising business, CEO Larry Page told analysts the company will continue investing "in what appear to be speculative projects," from high-speed fiber networks to wearable computers and cars that drive themselves.
"Companies tend to get comfortable doing what they've always done," Page said during a conference call. "My job as CEO is to get people to do new things."
Analysts say Google can afford to make those investments as long as it keeps pace with trends that affect its primary business of selling Internet advertising.
As more consumers go online with smartphones and tablets, rather than traditional computers, Google has wrestled with a steady decline in the average price that advertisers pay for online ads -- because advertisers view ads on mobile devices as less likely to produce immediate sales.
That decline has been partly offset by an increase in overall volume of ads sold. But analysts have been concerned that Google's average ad price, or "cost per click," has been falling for more than a year.
The rate of decline has slowed in each of the last two quarters, however, going from a 6 percent drop in the fourth quarter of 2012 to a 4 percent decline in the most recent period. That's a positive sign, according to BGC Partners financial analyst Colin Gillis, though he said investors were hoping to see the decline shrink further.
Google executives say advertisers are increasingly willing to pay more as mobile ads are becoming more effective. With most consumers using a variety of devices throughout the day, Google executive Nikesh Arora said, "our clients are hungry to advertise where consumers are."
The company also recently announced changes in the auction process that it uses to sell ads, which it hopes will encourage advertisers to incorporate more mobile spots into their campaigns. Among other things, the new system sets prices for tablet ads at the same rates charged for desktops.
Advertisers are already showing willingness to pay higher rates for ads on tablets, Sterne Agee analyst Shaw Wu said in a report this week, although some marketers have been unhappy with their options under the new system.
While online advertising remains its core business, Google has been pushing into other sectors, including computer hardware. The company reported $1 billion in first-quarter revenue from its recently acquired Motorola device business, which wasn't part of Google's business a year ago.
The Motorola business, which was struggling when Google bought it, reported an operating loss of $271 million for the quarter, down from $353 million in the previous quarter.
Google also recently announced plans to offer its experimental high-speed Internet network, Google Fiber, in two new cities: Austin, Texas, and Provo, Utah. And this week, it began delivering the first model of the wearable computer known as Glass to software developers who signed up as early customers.
Neither project is a significant source of revenue now, but Page characterized them as "big bets" which could pay off in the future. Saying he gets "chills" when he uses Glass, Page contrasted the wearable device with today's smartphones and added: "Some day we'll all be amazed that computing involved fishing around in pockets or purses."
Analysts agree those bets are important for Google's future. As with other big companies, Gillis noted, Google is not growing as fast as it did when it was a new business. "The rocket ship is slowing down," Gillis said. "You've got to build new revenue streams."
Google's revenue for the quarter was slightly less than Wall Street expected, but the company beat profit estimates with earnings of $9.94 a share, or $11.58 a share excluding one-time charges. Analysts were expecting $8.81 a share, or $10.66 a share excluding charges, on gross revenue of $14.2 billion, according to Thomson Reuters.
The stock closed Thursday at $765.91, but rose more than 1.5 percent in late trading after the earnings report.
Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/brandonbailey
(c)2013 San Jose Mercury News (San Jose, Calif.)
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