Google profits beat expecations, despite ad price drop and Motorola decline

18/10/2013

Google has reported a profit of $2.97bn (£1.84bn) during the July -September period, beating expectations, despite a slump in ad prices and its mobile arm Morotola making a loss of $248m.

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The figures represent a 36% rise in profits compared to the same period last year, exceeding analyst projections that steer investors. Google's stock surged by more than 6% after the numbers came out.

Rise of mobile

In a call to discuss earnings with investors, Mr Page highlighted just how dominant mobile has become among consumers.

He said that 40% of users reached YouTube through their mobile phones compared to just 6% two years earlier.

Google’s average ad price has declined from the prior year in each of the last eight quarters, mainly due to advertisers paying less for mobile ads then desktop ones.

As more people rely on mobile devices to connect to the Web, it's driving down Google's average ad price, or "cost per click."

In Google's latest quarter, that measure fell eight per cent from last year in the latest quarter. That was worse than the 6% year-over-year drop in the previous quarter.

26% rise in paid clicks

Despite this drop, Although Google is getting paid more frequently as people click on more of the ads. Google's number of paid clicks soared by 26% from last year, an indication that the company's data analysis is doing a good job matching ads with the interests of its services' users.

Revenue for the third quarter rose 12 per cent from last year to $14.9 billion. After subtracting commissions paid to Google's ad partners, Google's revenue stood at $11.9 billion — about $227 million above analysts' predictions.

Google's stock gained $58.71, or 6.6 per cent, to $947.50 in extended trading. If the stock reacts similarly in Friday's regular trading session, the shares will reach a new all-time high.

Despite the bopom in mobile, Google’s troubled Motorola unit continued to be a drag on the figures, however. It lost Google $248m, despite the launch of the flagship Moto X phone in August.

Competition from Facebook

Research firm eMarketer estimates that the mobile ad market worldwide will grow 89% to $16.65bn this year; up from $8.8bn in 2012.

Google's market share in the ad market is $6.9%. This has recently slipped slightly as rival Facebook has made inroads. Facebook now has 14.9% of the market, a jump from 9% last year.

Analysis

Commenting on the results, Alistair Dent, head of PPC, Periscopix, said:
“We haven’t yet seen the full impact of Google’s Enhanced Campaigns. Revenue is being driven up by a change in ad formats as part of Enhanced Campaigns, which mean more clicks per search, rather more money-per-click. So CPC stays low, but overall revenue goes up.This can be as much about the expansion of Google presence in developing markets, as about the lag in mobile CPCs. Every time Google opens up a new revenue opportunity, its overall revenues will rise, even though the average CPC is pulled lower.

“Google has released many new ad formats over recent months, including product listings and images in ads. It’s likely that the increase in ad clicks per search will have a bigger impact than CPC changes on mobiles.

“Google is looking to increase overall revenue in as many ways as possible. Mobile is becoming increasingly important as a driver to increase revenue. The old view that bids for mobile searches should be 20-30% lower than for desktop is starting to be challenged. Analysis from Periscopix shows that mobile in most cases is actually be higher performing, which will drive greater revenues from mobile for Google.”

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