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Google Reports Higher Profit By Rolfe Winkler



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By Rolfe Winkler

Google CEOa Larry Page Reuters

Google CEOa Larry Page Reuters

Google posted a 17% increase in revenue and a 17% increase in net income in the fourth quarter compared with the prior year, one day after it announced plans to sell its unprofitable Motorola smartphone unit. WSJ’s Rolfe Winkler reports. 

Investors seem happy that Google Inc. GOOG +2.57% is streamlining its businesses, and even happier that those businesses continue to hum right along.

The search giant posted a 17% increase in revenue and a 17% increase in net income in the fourth quarter compared with the prior year, one day after it announced plans to sell its unprofitable Motorola MSI +1.45% smartphone unit to Lenovo Group Inc. 0992.HK -8.21%for $2.9 billion.

With strong revenue growth, Google continued to beat back concerns that the shift in Internet usage to mobile devices from desktop computers would harm its lucrative search business.

Revenue of $16.9 billion was slightly higher than the $16.8 billion analysts had been projecting for the period, according to Thomson Reuters. That was driven by 17% growth in Google’s core advertising business to $14.1 billion.

The revenue growth excited investors as Google’s shares leapt about 4% in after-hours trading. It finished 4 p.m. trading at $1,135.39, up 2.6%.

Investors shrugged off disappointing bottom line results: Google reported net income of $3.38 billion, or $9.90 a share, compared with earnings in the year-earlier period of $2.89 billion, or $8.62 a share. Excluding stock-based compensation and other items, Google said earnings were $12.01 a share; analysts on that basis had predicted $12.20 a share.

Driving the increase in ad revenues was a 31% growth in clicks on the company’s search advertisements. However, the average amount Google receives for each click continued its decline, dropping 11% from last year’s fourth quarter. In part, the declining per-click payment reflects the shift toward the smaller screens of mobile phones, where advertisers generally pay less for ads than on desktop computers.

Google’s latest numbers came a day after Facebook Inc. reported an eightfold increase in profit and a 63% revenue increase. The back-to-back strong results highlight how advertisers are shifting spending online, often at the expense of traditional media.

Google shares have risen about 60% since the beginning of 2013, including late Thursday trading. That demonstrates that most investors are sanguine about the shift to mobile, despite the fact that Google’s link-based ads don’t always translate well from desktop computers to smaller smartphone screens.

Google has made strides to improve its results for phones. New image-based ads for products have been particularly successful.

Rather than a string of text, these have photos and prices and resemble the product listings that appear on Inc. These “product listing ads” are particularly useful for searchers looking for something specific and Google is seeing “great momentum” with such ads, Google Chief Business Officer Nikesh Arora told investors. He noted how the “more bite-sized” ads make it easier for Google users to find and buy items on their phones.

Retail advertisers have been buying more of these ads throughout 2013, leading to higher prices.

Adobe Systems Inc. ADBE +1.59% says the cost per click on product ads increased 80% in the fourth quarter from the prior year. Yet in a sign that they are performing well for advertisers, the higher cost didn’t lead to any drop in advertisers’ return on investment, said Adobe.

Another bright spot is app sales via the Google Play store on Android smartphones. Executives pointed to that as a key reason for strength in the company’s “other” revenue line, which doubled to $1.7 billion from the prior year.

Analysts were excited by the sale of Motorola to Lenovo. Ken Sena of Evercore Partners said selling that business “eliminates a potential distraction in hardware while supporting the Android ecosystem.” It also boosts Google’s bottom line—the company has absorbed over $2 billion of operating losses in its smartphone unit since acquiring it in 2012.

Google’s heavy investment continues as the company builds computers and data centers to speed the delivery of everything from search results to YouTube videos. Capital expenditures amounted to $7.4 billion in 2013, a record for the company, and up 125% from $3.3 billion in 2012.

The company’s overall cash balance continued to climb, ending the year at $58.7 billion. It also continued to add more employees at a rapid clip, increasing head count by 1,700 in the quarter to nearly 44,000.

At $1,180 after hours, Google shares were trading hands at a valuation of 31 times 2013 earnings.

Write to Rolfe Winkler at and Michael Calia



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