Apparently for digital companies to make money these days they need a strong mobile presence, videos and loads of cash to fund it. Google, which has minted money in the past, stumbled in its first-quarter earnings this year.
The New York Times story by Conor Dougherty said that analysts were concerned that Google’s growth was slowing:
If you wanted to sum up the technology industry’s flurry of recent earnings reports, the following would suffice: more mobile, more video. So it was with Google, but it has come at a cost.
During its first-quarter earnings call on Thursday, the search giant tried to assuage analysts’ long-running concern that its growth is slowing because mobile phones, with their tiny screens that can be clumsy to click through, are a less lucrative advertising medium than the desktop computers with which the Google empire was built.
In doing so, Patrick Pichette, the company’s chief financial officer, who is leaving, noted that Google’s YouTube video site has been growing fast but for now is simply a less lucrative business than Google’s highly targeted search ads.
“As you know, video ads generally reach people earlier in the purchase funnel, and so across the industry they tend to have a different pricing profile” than that of search ads, he said.
It was the sixth straight miss for Google, Jessica Guynn wrote for USA Today:
For the sixth straight quarter, Google’s (GOOG) earnings fell below analyst estimates. But investors were pleased with a healthy bump in the number of paid clicks on Google ads and comments from executives about the growing popularity of ads on the Google-owned video service YouTube, sending shares up 4% to $567.45 in after-hours trading.
BGC Partners analyst Colin Gillis says investors had braced for worse. And, he said, it helped that the Nasdaq Composite Index closed at a record high that topped its dot-com era peak.
“This shows that downside concerns and fears were much worse than estimates and those concerns and fears are not materializing to the degree expected,” Gillis said.
Google, which gets more than half of its revenue from overseas, got walloped by the stronger U.S. dollar. Google said first-quarter revenues would have been $795 million higher if it were not for the currency headwinds.
The Forbes story by Ellen Huet offered these details about the results and pointed out that it pointed out the cost-per-click:
The search giant posted $17.26 billion in revenue, missing the $17.5 billion that analysts expected. Adjusted earnings per share were also a few cents lower than expected at $6.57. Revenue grew 12% over last year, but that number would have been 17% “excluding the net impact of foreign currency headwinds,” said Patrick Pichette, Google’s CFO who is planning to leave and will be replaced by Ruth Porat.
Paid clicks grew 13%, down from 14% a quarter ago. Cost-per-click, the amount marketers pay every time a user clicks on one of their ads, took a 13% dive, continuing a decline that began several quarters ago.
In an unusual move, Google’s earnings separated out the cost-per-click on Google’s sites, which include Google.com and YouTube, from sites on Google’s ad network. Pichette said it was to provide some “color” to the ongoing drop in cost-per-click.
Too many commentators and analysts were interpreting the ongoing drop in cost-per-click to mean that Google was having trouble monetizing on mobile, Pichette said. Instead, he attributed the drop to the growth of YouTube, which is gaining viewers as it expands globally.
Rolfe Winkler and Alistair Barr wrote for The Wall Street Journal that Google was losing share to Facebook in digital ads:
Even excluding currency effects, Google’s growth has slowed as its core search-advertising business has started to mature. Facebook Inc. has become a formidable rival for brand advertising, expected to be the next big pot of ad dollars to shift online from conventional media like television.
“Just two years ago Facebook ads were a joke, but now they’re actually better than [Google ads] in about 10 different ways,” said Larry Kim, founder of online-advertising agency WordStream. He highlighted Facebook’s ability to target ads at more specific groups of people and the fact that the ads work so well on smartphones.
A Google spokesman declined to comment.
Facebook said Wednesday that its first-quarter revenue rose 42% to $3.54 billion; it also cited headwinds from the strong dollar. The faster growth shows Facebook is gaining market share from Google in digital advertising.
As the competition heats up, Google is trying to fend them off as well as the expectations of analysts and investors. As YouTube, Facebook and others get better at ads, Google is going to have to fight harder to keep their share of marketers’ wallets. But despite the drop, the company is still making a lot of money and that should keep investors happy – for now.
