Google Profit Rises on Year-End Advertising Gain

Google Inc. (GOOG), owner of the world’s largest search engine, rose the most since 2011 after reporting profit that topped analysts’ estimates as advertisers boosted spending to reach consumers during the holiday season.

Fourth-quarter profit, excluding certain items, rose to $10.65 a share, Google said in a statement yesterday. Analysts had projected per-share earnings of $10.50, according to data compiled by Bloomberg. The adjusted figure excludes items such as taxes tied to stock-based compensation. Net income rose 6.7 percent to $2.89 billion, or $8.62 a share.

Google’s earnings were boosted after retailers poured money into online advertising and extended the gift-buying season. Total U.S. e-commerce spending jumped 14 percent during the last two months of 2012 as retailers began promoting Web deals earlier, according to ComScore Inc. That’s helping compensate as Google relies more on mobile advertising, which tends to be less lucrative than ads on traditional computers.

“People were probably expecting something more on the downside, and results were pretty good,” said Benjamin Schachter, an analyst at Macquarie Securities USA Inc., who has a buy rating on the stock. “The transition to mobile is still a work in progress, but they are showing they can manage that process quite well.”

Photographer: David Paul Morris/Bloomberg

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Photographer: David Paul Morris/Bloomberg

Google Inc., owner of the world’s largest search engine, reported profit that topped analysts’ projections as advertisers boosted spending to reach consumers during an extended holiday shopping season.

The shares of Mountain View, California-based Google rose 5.5 percent to $741.50 at the close in New York, their biggest gain since October 2011.

Ad Costs

Rates for mobile ads can be about 55 percent less than for promotions on desktop machines, according to Covario Inc., an online marketing agency. Still, Google managed to tap the brakes on the pace of decline in the average amount advertisers paid each time a user clicks on a promotion. The so-called cost per click decreased 6 percent, following a 15 percent decline in the previous period. The total number of clicks advanced 24 percent, after a 33 percent increase in the third quarter.

“It’s big, bad Google doing pretty well,” said Jordan Rohan, an analyst at Stifel Nicolaus & Co. in New York. “Google continues to monetize its searches very well.”

Revenue, excluding sales passed on to partner sites, rose 39 percent to $12.2 billion, compared with $12.4 billion projected by analysts. Sales from operations excluding the Motorola Home set-top box unit, which Google agreed to sell last month, increased 36 percent to $14.4 billion.

“We ended 2012 with a strong quarter,” Chief Executive Officer Larry Page said yesterday on a conference call. “I am incredibly optimistic about the opportunities we have as a technology company focused on user benefits.”

Global Gains

Page, who refrained from joining an earnings call last year due to difficulties with his voice, spoke in quiet tones and a voice that sounded hoarse at times.

International markets represented 54 percent of sales, up a percentage point from a year earlier and in the third quarter. Google benefited from strength in Northern European markets, Nikesh Arora, chief business officer, said during the call.

Google made a $12.4 billion purchase of smartphone-maker Motorola Mobility Holdings last year. In August, Google said it would cut 4,000 Motorola jobs and close about a third of its 90 facilities. Arris Group Inc. (ARRS) agreed to buy the Motorola Home unit for $2.35 billion in December.

With the cutbacks, Motorola now can focus on its handset business, which uses Google’s Android operating system to run the smartphones. Still, the Motorola unit had a net operating loss of $353 million.

Android Push

“We do care about profitability, and that is our goal with every one of the areas where we invest,” Patrick Pichette, chief financial officer, said during the call. “We’ve made a ton of progress.”

He said that Google’s effort to bring faster network service to users in Kansas City is performing well. The company is considering expanding the service in the future, he said.

Android, which is provided for free to manufacturers, has become a key part of the company’s push into mobile, giving Google access to user data around the world. Android snared 72 percent of the global smartphone market in the third quarter, according to Gartner Inc.

The company also has a leadership position in search, its core business. Google grabbed 67 percent of the market in the U.S. in December, according to ComScore Inc. (SCOR) That compares to 16 percent for Microsoft Corp. (MSFT) and 12 percent for Yahoo! Inc.

Despite its lead, Google could come under pressure from Facebook Inc., owner of the world’s largest social-networking service. Last week, Facebook announced a new search tool that lets users discover people, photos, places and interests on the service.

When fully rolled out, the feature could give Web users an incentive to use Google less. Facebook also has a partnership with Microsoft’s Bing search engine, which will deliver additional results from the Web when Graph Search doesn’t deliver clear answers to queries.

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

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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