Shares of Google were down 3 percent to $539.80 in after-hours
trading on Wednesday, after initially sliding roughly 6 percent on
The number of "paid clicks" by consumers on Google's ads increased
by 26 percent in the first quarter, disappointing some analysts who
had hoped for stronger volume growth. And the average "cost per
click" declined 9 percent, extending a downward trend as mobile
advertising, typically cheaper than traditional online ads, make up
a bigger slice of its business.
The world's largest search engine, along with Facebook Inc and
Twitter Inc, which are due to report financial results in coming
weeks, are revamping their products and advertising business to
account for smartphones.
"It's an average quarter from a great company," said BGC Partners
analyst Colin Gillis. "It's the same old story. Paid clicks were a
little lighter than people might have hoped, CPC declines were a
little higher than people would have liked, expenses continued to
Operating income slipped to 32 percent of revenue on an adjusted
basis, from 34 percent in the year-ago period.
Google is spending big to push into various new markets with
innovations such as wearable computers, ultra high-speed Internet
access and home automation. In January it acquired Nest, which makes
smart thermostats and smoke detectors, for $3.2 billion.
The Nest purchase and some legal expenses bumped up Google's
spending during the quarter, Finance Chief Patrick Pichette said
during a conference call on Wednesday. But aside from those items,
"our expenses continue to demonstrate the same disciplined agenda
we've always had," he said.
Sales of digital media such as movies and games in Google's online
Play store, as well as hardware devices such as the Chromecast
television gadget, boosted Google's "other" revenue 48 percent
year-on-year to $1.6 billion.
Google's revenue climbed 19 percent to $15.42 billion in the first
quarter from $12.95 billion in the year-ago period. Analysts polled by Thomson
Reuters I/B/E/S had estimated $15.54 billion.
Traffic acquisition costs, the fees that Google pays to partner
websites that run its ads, were $3.23 billion, or 23 percent of
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Google's advertising rates, like those of other Internet companies
including Yahoo Inc, has been under pressure as more consumers
access its online services on mobile devices such as smartphones and
tablets, whose advertising rates can be half as much as on personal
computers, according to Needham & Co analyst Kerry Rice.
Google's ad prices are also under pressure as the company expands
into emerging markets, where ad rates are lower, said Rice.
Google Chief Business Officer Nikesh Arora said prices of mobile ads
will eventually catch up to prices of online ads that appear on
desktop PCs, as improvements in mobile search capabilities and
mobile websites make it easier for consumers to buy things on a
smartphone's small screen.
Arora did not provide a time frame, though Needham analyst Rice said
he did not expect the change to happen overnight.
"We've probably seen the bottom, but I don't expect some rapid
improvement," said Rice.
Google posted $3.45 billion in net income, or $5.04 per share, in
the three months ended March 31, compared to $3.35 billion, or $4.97
per share, in the year-ago period. Excluding certain items, Google
earned $6.27 per share.
Google reported a $198 million net loss from "discontinued
operations," which includes the Motorola smartphone business. Google
announced plans in January to sell the money-losing business to
China's Lenovo for $2.91 billion.
(Reporting by Alexei Oreskovic; editing by Richard Chang)
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