Google Inc views the computing shift to smartphones and tablets as a golden opportunity, but the Internet search leader’s second-quarter performance served as an unsettling reminder that it poses a nagging financial challenge, too.
The report released on Thursday showed Google’s average ad rate fell from the previous year for the seventh consecutive quarter. In an unexpected turn, the decline deepened for the first time in a year.
The average ad rate, or “cost per click,” fell 6 percent during the three months ending last month. The magnitude of the declines had eased in each of the previous three quarters, raising hopes that the worse was over. Instead, things deteriorated from the 4 percent decline in ad rates during the first three months of the year.
The regression undercut earnings and revenue. Both fell below analyst forecasts, spooking some investors. Google’s shares fell US$34.68, or nearly 4 percent, to US$876 in extended trading after the results came out.
Other unwelcome developments also loomed over the quarter.
Excluding the costs of stock given to employees, Google’s operating expenses climbed 27 percent from last year to US$4.25 billion. That increase renewed concerns that Google is pouring too much money on far-flung projects, such as the development of driverless cars and balloons equipped with Internet-beaming antennas, instead of focusing on its main business of Internet search and advertising.
Motorola Mobility, a slumping cellphone maker that Google bought for US$12.4 billion 14 months ago, also remains a headache. The subsidiary lost US$342 million in the latest quarter, widening from US$199 million when Google owned Motorola for only part of the reporting period.
Motorola now has lost a total of US$1.7 billion under Google’s ownership, despite layoffs and divestitures that have whittled Motorola’s work force to 4,600 people, down from 20,300 a year earlier.
Although he would not forecast when Motorola might start making money, Google CEO Larry Page told analysts on a Thursday conference call that he was excited about the upcoming release of a new phone called Moto X. Page provided no further details about the phone, which he and other Google employees have been testing.
Mobile ads, though, were the biggest issue on investors’ minds as Google is still having trouble navigating a technological transition driving more online activity on to smartphones and tablets.
Those devices pose a financial challenge for Google because their smaller screen sizes fetch lower ad rates than the marketing pitches made on desktops and laptops.
Google earned US$3.2 billion, or US$9.54 per share, up 16 percent from US$2.8 billion, or US$8.42 per share, a year earlier.
If not for the costs of employee stock compensation and charges tied to Motorola, Google said it would have earned US$9.56 per share. That missed the average target of US$10.80 per share among analysts surveyed by FactSet.
Revenue climbed 19 percent to US$14.1 billion, from US$11.8 billion. After subtracting ad commissions, revenue stood at US$11.1 billion — about US$275 million below analyst projections.