Google results fall short of expectations
San Francisco, January 20, 2012
Google's quarterly results fell short of Wall Street's heightened expectations for the holiday season as declining search advertising rates contributed to a rare miss, triggering a 9 percent slide in its shares.
The No. 1 Internet search engine underperformed on both revenue and earnings in the fourth quarter, disappointing investors who had counted on record US online-commerce to prop up results.
Several analysts zeroed in on an 8 percent drop in cost-per-click, or money paid by marketers to the company for search ads, versus analyst estimates of a slight increase.
"The major question is: Is this a one-time thing or is this something that is going to continue because the nature of the business has changed," said Mayuresh Masurekar, an analyst at Colins Stewart.
Google executives reeled off a number of figures during the conference call that highlighted the company's progress in newer businesses such as display advertising, mobile and social networking.
But the good news did not offset concerns about Google's first year-on-year decline in its CPCs in more than two years, leading to nearly a half-dozen questions from analysts during the call and a terse one-liner from Chief Executive Larry Page who at one point requested that "maybe we can get our next question not about CPCs."
Google said it earned $2.71 billion, or $8.22 per share, in the fourth quarter, compared with $2.54 billion, or $7.81 per share, a year earlier. Excluding certain items, Google earned $9.50 per share, lagging estimates for $10.49 a share.
Google executives said the decline in search ad rates was primarily due to the impact of foreign currency exchange fluctuations and changes to the company's advertising formats.
The new ad formats drove a sharp increase in the total number of clicks by websurfers on Google's search ads - up 34 percent year-on-year - even though some of the format changes impacted prices negatively, Google executives explained.
But many analysts wondered whether Google's mobile advertising, which is generally believed to command lower ad rates, played a bigger part in the CPC decline than Google let on.
"This was the first time we've seen a decline in CPC rates since 2009," said Needham & Co analyst Kerry Rice. "It's been a long time and the one thing that's really changed about this is mobile."
Google's shares dived to about $583 in after-hours trade, from the Nasdaq close of $639.57 before the results.
Operating expenses increased to 32 percent of revenue during the fourth quarter, from 30 percent of revenue in the year-ago quarter. - Reuters