Google's Internet biz roars even as ad rates slide

SAN FRANCISCO Thu Jul 19, 2012 5:51pm EDT

Google Inc's logo is seen at an office in Seoul in this May 3, 2011 file photograph. REUTERS/Truth Leem/Files

Google Inc's logo is seen at an office in Seoul in this May 3, 2011 file photograph.

Credit: Reuters/Truth Leem/Files

SAN FRANCISCO (Reuters) - Google Inc's revenue increased 21 percent as strength in its Internet advertising business offset a persisting drop in ad rates, stirring hopes among investors the Web search leader is close to slowing that decline.

Shares of Google were up about 3 percent in after hours trade.

Advertising rates, or costs per click, have headed south as users gravitate to smartphones and tablets, where Google can generally charge less than on desktop computers.

Google said revenue for its existing Internet business totaled $10.96 billion in the quarter, up from $9 billion a year earlier. But the cost per click for online search ads continued to decline in the second quarter, falling 16 percent year-on-year.

The overall number of clicks on ads, however, increased a robust 42 percent. And some analysts highlighted a quarter-on-quarter 1 percent gain in the second quarter's CPCs.

"Search demand in the U.S. search was pretty solid, and despite economic challenges in Europe, I'm getting the sense that search demand was not too bad there," said Needham & Co analyst Kerry Rice.

Cost per click "was down more than I expected, but this could be a trough, since we did see a sequential uptick," Rice added. "We may have hit the bottom here."

Google, which recently acquired hardware maker Motorola Mobility, posted overall revenue of $12.2 billion for the quarter and net income of $2.79 billion, or $8.42 per share, on a consolidated basis.

The company, the world's No. 1 Web search engine, closed the acquisition in May, giving it a foothold in the fiercely competitive smartphone hardware business, dominated by companies such as Apple Inc and Samsung.

Motorola reported an operating loss of $233 million in the second quarter, on revenue of $1.25 billion.

Executives, in a post-earnings conference call with analysts, highlighted the success of past acquisitions. Senior Vice President Nikesh Arora ticked off several past deals, including Youtube and Doubleclick, which he said were now "well integrated and helping us succeed in the ad space."

Chief Executive Larry Page, who is resting his voice due to an unspecified ailment, did not participate in the call.

Google's stock climbed to $611 in extended trade, from a close of $593.06 on the Nasdaq.

"Cost per click is sequentially up 1 percent. That's a good sign that you are getting to a recovery," said Susquehanna Financial analyst Herman Leung. "Paid-click volume is really strong; it's a good thing. The volumes are accelerating and usage of Google has not stopped, it just has continued."

(Reporting by Alexei Oreskovic and Gerry Shih; Editing by Steve Orlofsky)

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