By Alexei Oreskovic
SAN FRANCISCO, July 18 Google Inc on
Thursday reported second-quarter results short of Wall Street's
estimates as weakening prices for the Internet company's ads and
widening losses from its Motorola mobile phone business weighed
on the bottom line.
The falling ad prices surprised analysts and investors, who
expected recent changes to the web search company's advertising
system to help mitigate the effects of an industry-wide shift to
Shares of Google, which had risen to all-time highs in
recent weeks, slid roughly 4 percent to $872.80 in after-hours
trading on Thursday, having earlier closed at $910.68 on the
Google's business, like those of rivals Facebook Inc
and Yahoo Inc, has been under pressure as more
consumers access its online services on mobile devices such as
smartphones and tablets, where advertising rates are lower than
Earlier this year, Google changed the way marketers run ad
campaigns on Google, blurring the distinction between ads
destined for PCs and mobile ads, in a move that some analysts
believed could help bolster Google's overall ad prices.
That did not happen in the second quarter.
"We've got to assume that maybe Enhanced Campaigns is not
going to provide the pricing boost that a lot of people were
expecting," said JMP Securities analyst Ronald Josey, referring
to a new ad policy program unveiled by Google in February.
The average price of Google's online ads slid a
larger-than-expected 6 percent year-on-year in the second
quarter, compared with the first quarter's 4 percent decrease.
One problem may be that consumers don't click on mobile ads
as often as they do on desktop PCs, said BGC Partners analyst
"So even if you force advertisers to buy them, if the
conversion rates drop, (advertisers are) going to pay less for
clicks," he said. "The reality is that Enhanced Campaigns may
serve to drag down overall click pricing."
Patrick Pichette, Google's finance chief, cited a variety of
reasons for the decline in ad prices during a conference call
with analysts on Thursday, including a growing portion of ads in
international markets with lower rates, as well as the shift to
And he stressed that Google's overall volume of ads
increased by 23 percent, accelerating from the first quarter's
20 percent gain.
Google's consolidated revenue, which includes results from
its Motorola mobile phone business, was $14.11 billion in the
second quarter, versus $11.81 billion in the year-ago period.
Analysts, on average, expected $14.4 billion, according to
Thomson Reuters I/B/E/S.
Revenue for its core business rose 20 percent to $13.11
Excluding items, Google earned $9.56 per share, lower than
the $10.78 expected by analysts.
Google Chief Executive Larry Page said new businesses such
as a streaming music subscription service were off to a strong
start, and noted that more than 1.5 million mobile devices that
are sold every day feature Google's Android software.
The company has also been investing heavily in hardware
devices, notably in its loss-making Motorola division, which is
soon expected to finally unveil a signature phone - the
so-called Moto X.
But Motorola's widening losses took a toll on Google's
profit margins, adding further concerns on Wall Street.
Operating margins dipped to a lower-than-expected 28 percent
in the quarter from 33 percent a year earlier. Motorola,
acquired by Google in 2012, racked up a loss of $218 million
before items, more than four times the $49 million it lost a
"Google outsourced the Motorola manufacturing and sold the
home business, so I would have expected Motorola's margin to be
higher," said Kerry Rice, an analyst at Needham & Co.