Google Internet business defies econ worries, ad clicks surge
Vic Gundotra, director of product management of Google, walks on stage during Google I/O 2012 Conference at Moscone Center in San Francisco, California in this June 27, 2012 file photograph. — Reuters picSAN FRANCISCO, July 20 — Google Inc's core Internet business increased revenue by 21 per cent in the second quarter, easing Wall Street worries that a slumping global economy would take a toll on the company's online advertising.
Shares of the world's No.1 search engine were up about 3 per cent in after hours trade.
Google, which reported its first set of quarterly results since its May acquisition of Motorola Mobility for US$12.5 billion (RM37.5 billion), offered few details about its plans to expand into the hardware business, focusing instead on what it described as healthy trends in its traditional online advertising business.
“The stock is working after hours because core search seems to be working really well,” said ThinkEquity analyst Ronald Josey.
“I don't think it was a knock-the-cover-off-the-ball quarter, but a quarter that showed that despite the fears around macro and FX, the company continues to execute really well,” said Josey.
Google's advertising rates continued to be pressured by adverse macroeconomic and currency conditions and by consumers' increasing use of smartphones to access mobile versions of the Web. But investors took comfort in the 42 per cent surge in overall clicks on Google's search ads during the second quarter.
“Paid-click volume is really strong; it's a good thing. The volumes are accelerating and usage of Google has not stopped, it has just continued,” said Susquehanna Financial analyst Herman Leung.
Google said revenue for its existing Internet business totalled US$10.96 billion in the quarter, up from US$9 billion a year earlier.
Motorola mystery
Google Finance Chief Patrick Pichette said the company was still in the process of evaluating every business and division of Motorola.
“I need a bit of patience for us to complete our homework,” Pichette said, when asked about Google's views on Motorola's television set-top box business.
Investors have a wide range of questions about Google's expansion into the hardware business, where margins are low and competition with the likes of Apple Inc and Samsung Electronics is fierce.
“We, like everyone else, were expecting to get a little more around what they were expecting to do with it, rather than just noting that it's only a couple of months in,” said RBC Capital Markets analyst Andre Sequin, referring to Google's plans for Motorola two months after the deal officially closed.
Among the key questions still unanswered by Google, he said, are the pace at which the company will churn out new mobile phones and whether Google will develop a high-end device that's intended to challenge Apple's iPhone directly.
“For most people, the biggest concern is that this is not a core competency for them. And what will this do to margins?” said Sequin.
Motorola reported an operating loss of US$233 million in the second quarter on revenue of US$1.25 billion.
With little information to share on Motorola, Google executives went to lengths on the conference call to highlight the success of past acquisitions. Senior Vice President Nikesh Arora ticked off several past deals, including Youtube and Doubleclick, which he said were now “well integrated and helping us succeed in the ad space”.
Chief Executive Larry Page, who is resting his voice due to an unspecified ailment, did not participate in the call. Arora said that Page continues to run the company but that there was no news to share on his health.
Google's stock climbed to US$611 in extended trade, from a close of US$593.06 on the Nasdaq.
Mobile ads
Google's headcount swelled to 54,604 employees at the end of the second quarter due to the Motorola acquisition, which added roughly 20,000 workers to the Internet company's payroll.
Google said its mobile advertising efforts continued to make progress, with more than 1 million advertisers for its AdMob product.
The cost per click for Google's online search ads continued to decline in the second quarter, falling 16 per cent year-on-year. But some analysts highlighted a quarter-on-quarter 1 percent gain in second quarter CPCs.
“(Cost per click) was down more than I expected, but this could be a trough, since we did see a sequential uptick,” said Needham & Co analyst Kerry Rice. “We may have hit the bottom here.”
Google posted overall revenue of US$12.2 billion for the quarter and net income of US$2.79 billion, or US$8.42 per share, on a consolidated basis.
“Search demand in the US was pretty solid, and despite economic challenges in Europe, I'm getting the sense that search demand was not too bad there,” said Rice. — Reuters
