Published On: Sat, Jan 31st, 2015

Google’s Revenue in Q4 Falls Short of Forecasts as Profit Margins Erode

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Google‘s revenue grew 15 percent in the fourth quarter but fell short of Wall Street’s target on declining online ad prices and unfavorable foreign exchange rates.

Shares of Google edged up 0.1 percent to $510.66 in extended trading after an initial dip on the news.

Google’s advertising revenue has come under pressure as more consumers access its online services on mobile devices such as smartphones and tablets, where ad rates are typically lower.

The growing popularity of mobile devices has made Facebook a greater threat in the battle for advertisers. Facebook reported on Wednesday that mobile ads on its network doubled year-over-year during the fourth quarter.

Google said on Thursday the average price of its online ads, or “cost per click, ” decreased 3 percent year-over-year in the fourth quarter, while the number of consumer clicks on its ads increased 14 percent.

Some analysts had hoped for gains in cost-per-click, said BGC Partners analyst Colin Gillis, adding that the company, which gets about half of its revenue overseas, also was hurt by the strong dollar.

“Business is slowing. The core is slowing. And what we’re saying is, it’s going to look on paper even worse as the dollar strengthens. And we are not at that point where mobile monetization is improving, ” he said. “The thesis that the landscape is changing and Google is missing out – I don’t think it will hold to be true, but they haven’t squelched it.”

Consolidated revenue in the three months ended Dec. 31 totaled $18.10 billion, compared to $15.71 billion in the year-ago period, according to Reuters.

Net income rose to $4.76 billion, or $6.91 per share, from $3.38 billion, or $4.95 per share, a year earlier. Adjusted earnings per share of $6.88 missed analysts’ expectations of $7.11.

Chief Financial Officer Patrick Pichette said in a statement that revenue grew “despite strong currency headwinds”, Reuters said.

The company also admitted for the first time that an internal management shake-up around the Glass headset earlier this month reflected a cutback in investment in the project after it had failed to meet internal targets.

CFO Pichette used the rare admission of the setback to a high-profile project to try to reassure Wall Street about Google’s financial discipline despite the big bets it has placed on everything form broadband networks to driverless cars, the Times said

There is concern that Google’s revenue could take another hit if the company were to lose its perch as the default search engine for Apple Inc.’s Safari browser, which is the way most iPhone users access the Internet.

Google lost a similar deal to be the default search engine for Mozilla Corp.’s Firefox Web browser this past quarter.

Despite all the talk about Google’s core ad business, Google is well known for throwing money into wild ventures. Expenses for the fourth quarter were $13.7 billion, up 22 percent from the previous year, with a 46 percent jump coming from R&D costs.

Projects such as self-driving cars and WiFi balloons for bringing the internet to remote areas of the world have frustrated investors in the past.

 

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