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Google misses expectations for revenue and profit

  • Article by: CLAIRE CAIN MILLER
  • New York Times
  • July 18, 2013 - 10:26 PM

– For more than a year, Google has been struggling to solve this riddle: Even though people are using Google on their mobile devices more than ever, how does Google make more money on mobile ads?

Despite a range of efforts by Google, the riddle remains unsolved, its financial report Thursday revealed.

Google reported second-quarter results that missed analysts’ expectations for revenue and profit. They showed that its desktop search business continues to slow and ad prices continue to fall as it struggles to make as much money on mobile devices.

The report was particularly incongruous given how Google’s share price climbed 27 percent this year.

It is a vexing problem for every company that has generated revenue through advertising, be it a century-old magazine with a mobile app or a new website aggregating the news. Mobile ads do not command the premium that Web advertising does (and Web ads do not make as much as print ads).

Colin Gillis, a technology analyst at BGC Partners, wrote a haiku before the earnings announcement: “The results should be / pretty as a picture to / justify the stock.”

They were not. Shares, which fell 1 percent ahead of the report on Thursday, fell another 4 percent in after-hours trading.

“One of the reasons why people like Google is you can look forward and see what they’re doing with Glass and laying fiber and driverless cars and Chrome, chasing after new revenue streams,” Gillis said. “But those are still pretty far away. Google’s core business is all about advertising and clicks, and the core business is absolutely maturing.”

Mobile ads, he added, are inexpensive yet “overpriced because the conversion rates are so low.”

“It’s still too hard to transact on a phone,” Gillis said.

Google reported second-quarter revenue of $14.11 billion, up 19 percent from $11.8 billion a year ago.

Net income rose to $3.23 billion, or $9.54 a share, from $2.79 billion, or $8.42 a share.

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