Google reports hopeful signs in mobile business
Jan 23, 2013 (San Jose Mercury News - McClatchy-Tribune Information Services via COMTEX) --
MOUNTAIN VIEW -- Google (GOOG) on Tuesday reported better-than-expected profit for its fourth quarter and, more important, revealed hopeful signs that the longtime Internet powerhouse is gaining the upper hand as it wrestles with the challenge of making money from the mobile computing boom.
Shares rose 5 percent in late trading after Google reported a slight improvement in a key business indicator -- the average price advertisers pay each time someone clicks on a Google ad -- which analysts viewed as a sign that wary businesses are beginning to see more value in mobile advertising.
"If this continues to get better," said analyst Josh Olson of the Edward Jones investment firm, "we can see there's light at the end of the tunnel."
Google, one of Silicon Valley's most profitable companies, also reported some progress in overhauling its Motorola hardware division, which the software giant bought last year in an effort to expand its smartphone and tablet business. Google has been cutting costs and staff in that division, and recently announced plans to sell a Motorola unit that makes TV set-top boxes.
While acknowledging the company has more work to do, both in the hardware division and its efforts to garner more revenue from mobile software applications, CEO Larry Page told analysts on
a conference call that the company's advertising business is strong.
"We're serving our users with amazing products that are getting even better," he said. "Our mobile business is going very well."
Page also touted a company milestone Tuesday. Google's fourth-quarter earnings pushed its annual revenue over $50 billion for the first time since he and co-founder Sergey Brin started the company in 1998 -- which Page called "not a bad achievement in just a decade and a half."
Despite that success, financial analysts have raised concerns that the popularity of mobile gadgets was cutting into Google's traditional Web-based business. Google's Android software is the most widely used mobile operating system in the world, but the company distributes Android for free and makes money primarily by selling ads.
While more people are using smartphones and tablets to access the Internet, advertisers have been reluctant to pay as much for messages on mobile screens as they paid for ads on desktop computers. Analysts say the lower price of mobile ads has been reflected in a steady decline of an indicator known as "average cost per click," or the overall average of the prices that advertisers pay each time users click on Google ads, as determined by automated auctions. While Google doesn't report separate figures for mobile and desktop clicks, the shift toward mobile ads is thought to be pulling that overall average down.
In an encouraging sign, Google reported Tuesday that it saw a slower decline in the average cost per click for its latest quarter, which fell 6 percent from a year ago, compared with a drop of 15 percent in the previous quarter. The average actually rose 2 percent from the third quarter to the fourth.
Previous declines had been a concern for investors, Olson said. "It's something they've been grappling with over the last year."
Google reported total revenue of
$14.4 billion for the quarter that ended Dec. 31, as a surge in holiday advertising drove overall sales up 36 percent. After subtracting commissions paid to advertising partners, Google had revenue of $11.34 billion.
The company reported net income of $2.89 billion, or nearly 7 percent more than a year earlier, for earnings of $8.62 a share. Analysts surveyed by Thomson Reuters were expecting earnings of $8.48 a share on revenue of $12.36 billion after subtracting commissions.
While revenue fell short of Wall Street's expectations, the picture was muddied by Google's statement that accounting rules did not allow it to count $840 million from the Motorola unit that's slated to be sold. Some analysts lowered their estimates to reflect that change, but others did not.
Google has been working to revamp the Motorola division, which had $1.5 billion in revenue for the quarter and an operating loss of $353 million, compared with an operating loss of $527 million in the previous quarter.
"We're not in the business of losing money with Motorola," Chief Financial Officer Patrick Pichette promised analysts. "We've made a ton of progress."
Page, who avoided public speaking last summer because of a mysterious voice ailment, sounded hoarse and out-of-breath Tuesday. But he spoke enthusiastically about Google's work on new products, from mobile apps to driverless cars and the Internet-connected glasses that Brin was spotted wearing Sunday in New York's subway.
When asked about a new search tool created by Facebook, a major Google rival, Page did not answer directly but said he was "very confident" in Google's business. Some of Google's new products may seem like science fiction, he added, "but they make Google an exciting place to be."
Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey.
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