Google Profits Up Despite Advert Value Squeeze

Google’s first quarter results were less than Wall Street’s estimates, but the general view is they could have been a lot worse given the pressure on its advertising business.

In its first quarter, the search giant posted modest rises in both profits and revenues, but investors took this on the chin and shares in the company rose 3.5 percent on Thursday to $577 (£381).

Outgoing CFO

Google’s results come amid increasing competition from rivals such as Facebook for advertising dollars on mobile devices. Google’s traditional strength has been on the desktop, and some are concerned that Google has been slow to react to the shift of users from static computers to mobile devices.

Nevertheless, the company is still very profitable. For the period ending 31 March, Google posted a net profit of $3.6bn (£2.4bn) compared to $3.5bn (£2.3bn) a year ago.

Revenue rose 12 percent to $17.5bn (£11.4bn) compared to $15.4bn (£10.2bn) in the same year-ago quarter.

This fell short of the $17.5bn (£11.5bn) that analysts had been expecting, but Wall Street seems to be happy that the results were not any worse, and consequently shares in Google rose in after-hours trading.

“Google’s first quarter revenue was $17.3 billion, up 12 percent year on year,” said Patrick Pichette, the veteran CFO of Google who is in the process of being replaced by former Morgan Stanley CFO Ruth Porat.

Pichette announced in March that he wants to retire at the age of 52 to spend more time with the family and go backpacking around the world.

Advert Values

“Excluding the net impact of foreign currency headwinds, revenue grew a healthy 17 percent year on year,” said Pichette. “We continue to see great momentum in our mobile advertising business and opportunities with brand advertisers.”

Advertising is of course the main income driver at Google and during the first quarter the number of ads, or paid clicks, rose 13 percent.

But more worrying is the admission that average price of online ads (cost-per-click) declined 7 percent, compared to the same year-ago quarter. This decline has been ongoing for a while now, and Google has been getting less and less money for the adverts it hosts over the past year.

This is because more and more consumers access Google websites from smartphones and tablets, but typically ad rates are lower on mobile devices, hence the squeeze on Google’s advertising revenues.

But in more positive news, YouTube continued to growth strongly, as more and more brands opt to utilise the video streaming service.

Earlier this year, Google revealed that it is about to throw the musical gauntlet down to Spotify, with the imminent arrival of its monthly music subscription service. The long-awaited service, called YouTube Music Key, will launch in a couple of months.

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