Google Revenue Falls Short as Competition on Mobile Intensifies

Updated on
Google's Achilles' Heel: The Mobile Market

Google Inc.’s fourth-quarter sales and profit missed estimates as the Web company’s advertising business faced more competition on mobile devices.

Revenue, excluding sales passed on to partners, rose 6.9 percent to $14.5 billion, the company said in a statement Thursday, missing analysts’ average projection for $14.7 billion, according to estimates compiled by Bloomberg.

Chief Executive Officer Larry Page is battling Facebook Inc. and other Web companies that are seeking to lure away users and advertisers on tablets and smartphones. Marketers are also paying less for mobile ads, driving fees lower within Google’s online-ad business. As a result, the average price of ads fell 3 percent in the quarter, following a decline of 2 percent in the previous period.

“People wanted to see that improve,” said Colin Gillis, an analyst at BGC Partners in New York, referring to the ad prices. “The hope was that there was a possibility that they’re starting to resolve the mobile situation -- still, it’s only down 3 percent.”

The shares of Mountain View, California-based Google were little changed in extended trading after falling as much as 5.1 percent. The stock advanced less than 1 percent to $513.23 at the close in New York. Google was down 5.4 percent in 2014, compared with an 11 percent gain in the Standard & Poor’s 500 Index.

In German trading Friday, the stock added 1.4 percent to the equivalent of $517.03 at 9:01 a.m. in Frankfurt.

Fourth-quarter net income rose 41 percent to $4.76 billion, or $6.91 a share, from $3.38 billion, or $4.95, a year earlier. Profit, excluding some items, was $6.88 a share, compared with analysts’ average projection for $7.11.

Driverless Cars

Page stepped up spending, as Google invests in areas outside of the company’s main search-advertising business, from high-speed Internet service and driverless cars to digital-payments systems and Web-linked glasses.

Operating expenses, which include engineering and sales staff, reached $6.78 billion in the fourth quarter, a 35 percent increase from a year earlier. That compares with quarterly operating expenses of $5.5 billion at Apple Inc., whose revenue was more than five times greater than Google’s in the same period.

“In many ways, 2014 was a year of significant investment growth,” Patrick Pichette, chief financial officer, said on a conference call. “We’ll continue to seek a healthy balance between growth and discipline.”

Online Ads

Google’s revenue from its own sites, including the key search engine, rose 18 percent to $12.4 billion. That compares with a gain of 20 percent in the third quarter. Other revenue, which includes the mobile Play app store and hardware such as the Chromecast streaming device, rose 19 percent in the quarter compared with a 50 percent gain in the prior period.

Google’s share of the online-ad market is coming under pressure as more users spend time on smartphones and tablets. The company, which has introduced services encouraging marketers to use its mobile features, saw its share of global mobile-ad revenue decline to 41 percent in 2014, from 47 percent in 2013, while Facebook’s rose to 18 percent from 17 percent, according to EMarketer Inc.

“Mobile is a big concern of investors,” said Robert Peck, an analyst at SunTrust Robinson Humphrey Inc., who has a buy rating on the stock. “What happens to Google’s dominance as it gets more competition as the world goes mobile?”

Excluding the impact of foreign currency fluctuations from the prior quarter, total revenue would have been higher by $541 million, Google said. While the dollar’s climb is reducing profits at U.S. companies from Procter & Gamble Co. to Pfizer Inc. and Microsoft Corp., more than three-quarters of S&P 500 members have still beaten analysts’ estimates this earnings season, according to data compiled by Bloomberg.

(A previous version of this story corrected the net income percentage change.)

a

Play Episode

Before it's here, it's on the Bloomberg Terminal. LEARN MORE