Google overcomes sales slump as profits rise 17%

31/01/2014

Google has beaten expectations with its latest financial earnings, recording fourth quarter profits of $3.38bn (£2.05bn), up 17% from a year earlier, boosted by stronger advertising revenue.

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However, the web giant saw a $384m operating loss at Motorola Mobility, the smartphone business it bought in 2012, and is selling to Lenovo for $2.9bn.

Google saw record sales of $55.5bn in 2013, including a 22% jump to $15.7bn in the final quarter, as the number of people clicking on adverts on the company’s websites rose by nearly a third.

However, there was an 11% decline in the average amount advertisers are paying for each of those clicks.

Google cannot charge as much for adverts viewed on smartphones as on traditional desktop computers, and the web search company has yet to come up with a business model that will enable to keep up with the shift towards mobiles.

Although Google remains the number one digital advertising seller, handily beating out rivals Facebook and Yahoo, the firm has struggled to raise its prices for mobile advertising.

Advertisers have so far been unwilling to pay more for mobile adverts compared to the traditional desktop offerings.

Overall, Google increased its number of paid clicks by 31%, but the company's average cost-per-click for the fourth quarter was down 11%.

That partially indicates that the firm is selling more mobile ads, but it is not being offset by a rise in mobile rates.

Stock split

The firm also announced a stock split will take place on 2 April. The stock split has been in discussion for three years, because shareholders were worried it would unfairly benefit co-founders Sergey Brin and Larry Page.

In the split, a new class of "C" shares will be created - but with no voting power - compared to the current class "A" shares.

Shares in Google remained flat after the earnings were released, but are up more than 50% for the year.

"We ended 2013 with another great quarter of momentum and growth," said Google chief executive Larry Page in a statement. Page was not able to discuss earnings in a conference call with analysts and has been suffering from a chronic vocal chord issue.

Analysis

Commenting on Google’s revenue per search, Alistair Dent, director of paid media, Periscopix www.periscopix.com, said: “Google’s revenues per search come down to two factors: revenue per click (based on advertiser bids and competitiveness) and the number of ad clicks per search (click-through rate on ads). A lot of focus has been on revenue per click, and Enhanced Campaigns were seen by some as a way to improve this. But Google’s biggest focus has been on ad clicks per search. Over the last 12 months lots of new ad formats have been released that mean on some searches they can truly dominate the search results page. By making the ads more prominent, the click-through rates have risen. This has contributed to Google’s continued revenue growth despite a lack of growth in CPCs. How far this can be stretched is unknown, but this trend hasn’t significantly slowed.”

In terms of the impact of enhanced campaigns Dent added: “Despite Google’s push this year with Enhanced Campaigns, we’re yet to see CPCs on mobiles rise in any meaningful way. The competitiveness of this area is growing continually as more advertisers are opted in to showing mobile ads, but the performance still doesn’t rival desktops, so advertisers aren’t willing to bid as highly.”

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