Bloomberg News

Google Sales Top Estimates on New Ad Formats

October 17, 2013

Google's Headquarters

Google Inc. reported sales that topped estimates during the third quarter as advertisers boosted spending on mobile and video promotions. Photographer: David Paul Morris/Bloomberg

Google Inc. (GOOG:US) reported sales that topped estimates during the third quarter as the number of promotions sold via mobile, video and other services made up for shrinking advertising prices.

Revenue, excluding sales passed on to partner sites, was $11.92 billion, the company said in a statement on its website today, exceeding the average analyst projection for $11.64 billion, according to estimates (GOOG:US) compiled by Bloomberg.

As Google expands beyond delivering ads alongside search results on desktop computers, it’s benefiting from demand for promotions that reach users via smartphone applications, online news clips or Web browsing on tablets. The number of paid clicks jumped 26 percent, even as the company reported an 8 percent decline in average costs. The Web company is on track to make up 33 percent of the global online-advertising market this year, up from 31 percent last year, according to EMarketer Inc.

“Google continues to execute very well,” said Colin Sebastian, an analyst at Robert W. Baird & Co. who rates the stock the equivalent of a buy, and doesn’t own it. “They are the preeminent Web-technology company.”

Profit excluding certain items was $10.74 a share, topping analysts’ average projection of $10.36. Net income rose 36 percent to $2.97 billion from the year-ago period.

Google, based in Mountain View, California, climbed as much as 8.3 percent in extended trading. The shares declined 1 percent to $888.79 at the close in New York, leaving them up 26 percent this year.

Pushing Forward

“My goal was to ensure that Google maintains the passion and soul of the startup as we grow,” Chief Executive Officer Larry Page said in a call with analysts. “That’s why I worked so hard to increase the velocity and execution.”

Page, who became CEO in 2011, also said that he won’t join every earnings call in the future, citing a need to prioritize his time. The co-founder last missed a call in July 2012 after he lost his voice, which forced him to miss other company events as well. In May, Page disclosed a health condition resulting in hoarse speech and labored breathing, noting that it wouldn’t impede him from running the company.

The search provider has been working to address falling prices. The company earlier this year introduced a new advertising service called “enhanced campaigns,” encouraging marketers to funnel more of their spending onto wireless devices. It’s the most significant update since the company’s search-based ad business was set up more than a decade ago, Gene Munster, an analyst at Piper Jaffray Cos., wrote in a report.

Ad Growth

The campaigns and other initiatives should help average ad prices recover in the next year or so, according to Victor Anthony, an analyst at Topeka Capital Markets Inc. Revenue at Google’s sites, including the search page and YouTube, expanded 22 percent in the quarter, faster than the 18 percent in the second quarter.

“The results clearly demonstrate that Google remains kind of the best of breed, best of class in the online advertising space -- really within the Internet space itself,” said Anthony, who rates the stock a buy and doesn’t own it.

Google is also spending on investments, mainly for equipment, data centers and real estate. Capital expenditures were $2.29 billion, up from $1.6 billion in the second quarter.

“They continue to grow -- for a company this size, very solid growth, still very profitable despite all the investments they’re making,” Sebastian said.

Branching Out

Google is making other changes. Earlier this month, Google said it would update its marketing rules to allow users’ names and photos to be used in more promotions.

The company is also considering developing a tool that would make it easier for companies to tailor online advertisements without using cookies, which track Web-browsing habits, a person with knowledge of the matter said last month.

Google and Facebook Inc. (FB:US) are taking market share from Yahoo! Inc. (YHOO:US), which earlier this week reported a decline in revenue, while profit was bolstered by the Web portal’s stake in China’s Alibaba Group Holding Ltd.

Google is pushing for better results in other areas, including in hardware. Its Motorola mobile unit, which the company bought last year in its biggest acquisition ever, announced a flagship Moto X smartphone in August, an effort to boost sagging market share. Revenue in the division declined 34 percent to $1.18 billion.

“Google has a lot of things going for it,” said Sameet Sinha, an analyst at B. Riley & Co, who rates (GOOG:US) the stock a buy and doesn’t own it. “Google has its fingers in every pie.”

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net


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Companies Mentioned

  • GOOG
    (Google Inc)
    • $571.1 USD
    • -4.98
    • -0.87%
  • FB
    (Facebook Inc)
    • $64.87 USD
    • -0.10
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