Google Sales Miss Estimates as Ad Fees Per Click Fall

Google Inc. (GOOG), owner of the world’s most popular Internet search engine, reported profit that topped analysts’ estimates as advertisers increased spending on mobile and video promotions.

First-quarter profit, excluding some items, was $11.58 a share, Google said yesterday in a statement. Analysts had projected $10.68 per share, according to data compiled by Bloomberg. Net income increased 16 percent to $3.35 billion, or $9.94 a share.

Google is pushing beyond its roots as a desktop-based search business to enter new ad-driven markets, including smartphones, Web services and video, stepping up competition with Apple Inc. (AAPL) and Microsoft Corp. (MSFT) The company’s search and video businesses bolstered results with Google-owned sites generating $8.64 billion in revenue for the quarter, up 18 percent from a year earlier, according to Benjamin Schachter, an analyst at Macquarie Securities USA Inc.

“The core business is still doing well,” Schachter said. “They’re managing to maintain a lot of strength in that core business across geographies.”

First-quarter revenue, excluding sales passed on to partner sites, rose to $11 billion, Google said. Analysts had projected sales of $11.2 billion, according to data compiled by Bloomberg.

Photographer: SeongJoon Cho/Bloomberg

Google is pushing beyond its roots as a desktop-based search business to enter new markets, including smartphones, Web services and video, stepping up competition with Apple Inc. and Microsoft Corp. Close

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Photographer: SeongJoon Cho/Bloomberg

Google is pushing beyond its roots as a desktop-based search business to enter new markets, including smartphones, Web services and video, stepping up competition with Apple Inc. and Microsoft Corp.

Shares of Mountain View, California-based Google rose 4.4 percent to $799.87 at the close in New York. The stock has advanced 13 percent this year, compared with a 9 percent gain for the Standard & Poor’s 500 Index.

Tax Credit

The company benefited in the first quarter from a federal credit that helped reduce its tax rate and boost earnings, Patrick Pichette, chief financial officer, said yesterday on a conference call with analysts. Google had an effective tax rate of 8 percent in the first quarter, less than half the 18 percent of a year earlier, the company said.

The average amount that advertisers paid each time a user clicks on a promotion decreased 4 percent, following a 6 percent decline in the previous three-month period. The total number of clicks advanced 20 percent, after a 24 percent gain in the fourth quarter. Analysts had predicted the cost per click would fall 2 percent, while the overall number would climb 20 percent, according to data compiled by Bloomberg.

Rates for smartphone ads can be about 52 percent less than for promotions on desktop machines, according to Covario Inc., an online marketing agency.

Revamped AdWords

Google is counting on mobile advertising to bolster growth. In February, the company upgraded its online advertising service to make it easier for marketers to reach users on different devices, including smartphones and tablets. The revamped AdWords service will also help companies manage bids for ads running at different locations and times,

The new push in mobile also includes the $12.4 billion acquisition of Motorola Mobility, which makes smartphones that run on Google’s Android software.

Google has made other investments outside its core search- based online advertising business. In February, the company said it would expand its laptop line, called Chromebook, to include a higher-end touch-screen version that cost at least $1,299 and up. Earlier this month, the company unveiled plans for high- speed Internet and television service in Austin, Texas, and Provo, Utah, after starting a similar program in Kansas City, Kansas, last year.

The company is investing now to ensure it benefits from future changes in technology, Larry Page, chief executive officer, said on the call with analysts. He touted new products including Glass, the digital eyewear with some of the same features as a smartphone.

“Incremental improvement is guaranteed to be obsolete over time,” Page said. “A big part of my job is to get people focused on things that are not just incremental.”

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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