At $17.3 Billion, Google’s Quarterly Revenue Rose 12 Percent

By CONOR DOUGHERTY APRIL 23, 2015



Google’s campus in Mountain View, Calif. The company’s first-quarter revenue was $17.3 billion, 12 percent higher than a year ago.CreditMarcio Jose Sanchez/Associated Press

SAN FRANCISCO — If you wanted to sum up the technology industry’s flurry of recent earnings reports, the following would suffice: more mobile, more video. So it was with Google, but it has come at a cost.

During its first-quarter earnings call on Thursday, the search giant tried to assuage analysts’ long-running concern that its growth is slowing because mobile phones, with their tiny screens that can be clumsy to click through, are a less lucrative advertising medium than the desktop computers with which the Googleempire was built.

In doing so, Patrick Pichette, the company’s chief financial officer, who is leaving, noted that Google’s YouTube video site has been growing fast but for now is simply a less lucrative business than Google’s highly targeted search ads.

“As you know, video ads generally reach people earlier in the purchase funnel, and so across the industry they tend to have a different pricing profile” than that of search ads, he said.

Adding to his statements about YouTube’s lower ad prices, Mr. Pichette said that Google’s overall ad rates grew across desktop and mobile searches. Google does not detail YouTube’s quarterly performance.

Google's stock activity over the last year.


Those words gave a little extra color to what has become the second act of the Google story. The company continues to grow at an impressive clip for any company, and particularly impressive for one with close to $70 billion in revenue. But virtually every new business will look pedestrian compared with the fine-tuned profit engine of its original desktop search engine.

By any measure, there are worse problems. Google on Thursday reported first-quarter revenue of $17.3 billion, up 12 percent over the same period last year. That figure was driven substantially downward by the strong dollar. Absent currency fluctuations, revenues would have been up 17 percent.

Google missed Wall Street’s expectations for the sixth time in the last nine quarters. Net revenue, which excludes payments to the company’s advertising partners, was $13.9 billion, up from $12.2 billion. Analysts had expected net revenue of $14.04 billion, according to Bloomberg.

Net income in the first quarter, which ended March 31, was $3.6 billion, or $5.20 a share, compared with $3.5 billion, or $5.04 a share.

Excluding the cost of stock options and related tax benefits, Google’s profit was $6.57 a share, compared with $6.27 a year ago. Analysts had expected $6.63 a share.

Google shares were up about 3 percent in after-hours trading.
In its annual proxy statement, filed separately on Thursday, Google said that its chief business officer, Omid Kordestani, an early Google employee who returned to the company from a consulting role last year, was its highest paid officer, with $130 million pay package, most of that in stock that vests over four years.

The figure dwarfs the $70 million package Google gave to its incoming chief financial officer, Ruth Porat, who will join the company in a month.

Google remains the dominant search engine by far, but its competitors are not ceding the market.

Last year, Yahoo struck a deal to replace Google as the default search engine on Firefox browsers, which is the primary reason Google’s share of desktop searches in the United States fell to 64.4 percent in the first quarter of 2015, down 3.1 percentage points from a year ago, according to data from RBC Capital Markets and comScore.

Carrying a dominant market share comes with other problems. Last week, after a five-year investigation, Europe’s antitrust chief brought charges that accused the company of abusing its competitive position in search by diverting traffic from rivals and favoring its own products instead.

Google could face a fine of around $6 billion — not much for a company with $65 billion in cash sitting around — as well as demands that it change its business practices.

That is only one of several potential headaches. The European Commission said it would continue to “actively investigate” Google on three other matters related to its search business, including some of the restrictions it places on advertisers and complaints that it copies its rivals’ web content for its own use.

The commission also said it had opened a formal antitrust investigation of Google’s Android mobile software.

Investors are worried that further regulation — or the threat of it — will make it harder for Google to compete or go after big acquisitions, said Benjamin Schachter, an analyst with Macquarie Securities. Neither he nor any other analyst asked about regulation during Thursday’s conference call, apparently because they figured Google would refuse to reveal anything insightful on the matter.

Colin Gillis, an analyst at BGC Partners, reflected on regulation with a haiku: “Interference by / Bureaucratic government / Can cause years of pain.”

Europe is moving against Google just as investors are starting to worry that the company’s core business is slowing in the face of increased competition from social media companies like Facebook, along with a constellation of mobile applications.

Mobile phones have been a big source of Google’s recent growth, helping the company’s advertising clicks increase 13 percent over the quarter a year ago.

However, the “cost per click” — the amount Google gets paid, on average, each time someone clicks on an ad — has fallen for several years. The rate fell 7 percent in the first quarter from the same period a year ago, primarily because of YouTube’s growth.

http://www.nytimes.com/2015/04/24/te...-earnings.html