Bloomberg News

Google’s Page Stung as Ad-Price Decline Means Results Miss

January 24, 2012

(Update share price in second paragraph.)

Jan. 20 (Bloomberg) -- Google Inc.’s Larry Page delivered his first disappointing quarterly results as chief executive officer after his push into mobile advertising and weakness in Europe trimmed growth in revenue from online advertising.

Shares fell the most in nine months after Google reported fourth-quarter sales, excluding revenue passed on to partner sites, of $8.13 billion, falling short of the $8.41 billion average estimate of analysts surveyed by Bloomberg. Profit before certain costs was $9.50 a share, missing the $10.50 average estimate.

Page, CEO since April, is exiting poorly performing businesses while expanding in new areas, including the mobile Web, to lessen reliance on traditional search. While that’s helping boost sales, it also crimps the amount of money Google can collect from advertisers because ads viewed on handsets are considered less valuable than those on a computer screen.

“Google looks more mortal this quarter,” said Colin Gillis, analyst at BGC Partners LP in New York. “A lot of what Larry Page is doing is a lot more tolerable to investors when the business is firing on all cylinders.”

The average price Google gets when users click on an ad slumped 8 percent last quarter. Growth was also hampered as demand weakness in Europe dragged down the euro and eroded the value of overseas revenue.

“Google is not invincible,” said Herman Leung, an analyst at Susquehanna Financial Group in San Francisco.

Europe Weakness

Google shares tumbled 7.6 percent to $590.78 at 9:34 a.m. New York time, the biggest intraday decline since April 15, after Google reported earnings yesterday after the markets closed. The stock climbed 8.7 percent last year.

International sales made up 53 percent of revenue in the quarter, down from 55 percent in the third quarter, Mountain View, California-based Google said. Online ad sales in Europe increased about 5 percent in the fourth quarter, compared with a 20 percent increase in the first half of last year, said Clay Moran, an analyst at Benchmark Co. in Delray Beach, Florida.

Search-based advertising spending in Europe rose 14 percent in the fourth quarter, compared with a 22 percent jump in the U.S., according to IgnitionOne Inc., a digital-marketing company.

Google’s net income rose to $2.71 billion, or $8.22 a share, compared with $2.54 billion, or $7.81 a share, a year earlier.

Operating expenses rose to $3.38 billion, or 32 percent of revenue, in the recent period. In the year-earlier quarter, operating costs equaled 30 percent of revenue, Google said.

‘Major Concerns’

“One of the major concerns here is, given the performance on the top line, what does the margin picture look like going forward?” said Ken Sena, an analyst at Evercore Partners Inc. in New York, who rates Google shares “overweight.”

The number of total clicks on ads rose 34 percent during the quarter, Google said.

The company has been working to offer customers more options in mobile and display advertising. Google also has been investing in its search engine to improve the quality of results and maintain its market-share lead over Microsoft Corp.’s Bing.

In December, Google’s share of U.S. searches rose to 65.9 percent from 65.4 percent the previous month, according to ComScore Inc. Microsoft had 15.1 percent of searches, up from 15 percent, while Yahoo! Inc. accounted for 14.5 percent.

Google is betting it can maintain its dominance in search by offering faster, more personal query results. Last year, Google rolled out the “Instant Pages” feature, which aims to cut the time of searches for users by about 2 to 5 seconds.

Personalized Results

Earlier this month, Google introduced “Search, Plus Your World,” intended to give users more personalized search results by tapping content from the Google+ social-networking service. The search service lists items that users may have put on Google+ or related results from friends’ posts on the social site, which competes with Facebook Inc. The Google+ service now has 90 million users, more than double the amount in October.

Still, Google’s efforts to attract users have drawn regulatory scrutiny. The U.S. Federal Trade Commission is focusing on whether Google unfairly ranks search results to favor its own businesses and increases advertising rates for competitors, a person familiar with the matter said in August.

More recently, the FTC expanded its antitrust probe of Google to include scrutiny of Google+, two people familiar with the situation said last week.

Google, which also develops the Android operating system for smartphones and tablets, has been using acquisitions in the past few years to build up its services for display ads, which features images, videos or animation, and ads on mobile devices.

Android, Display Gains

Last year, Google announced it was buying AdMeld Inc., which offers services to Internet publishers to manage display ads, and in 2010 the company bought AdMob Inc., which specializes in advertising on mobile phones.

Page, speaking on a conference call, said he was pleased with company’s performance. Google is on pace to generate $5 billion in sales from display-based ads a year, and there are now about 250 million devices that sport the Android operating system.

“I’m very happy with our results,” Page said. “Google had a very strong quarter.”

--With assistance from Douglas MacMillan and Aaron Ricadela in San Francisco. Editors: Tom Giles, Nick Turner

To contact the reporter on this story: Brian Womack in San Francisco at

To contact the editor responsible for this story: Tom Giles at

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