Google sales miss estimates as mobile-ad prices crimp results

Google Inc., owner of the world’s most popular Internet search engine, reported second-quarter sales that fell short of analysts’ estimates as advertising tied to mobile devices crimped average prices.

Revenue, excluding sales passed on to partner sites, was $11.1 billion, Google said today on its website. That compared with an average analyst estimate of $11.3 billion, according to data compiled by Bloomberg. Shares slid as much as 5.6%.

Google’s average cost per click, a measure of advertising rates, fell 6% as more marketers aimed to reach consumers through smartphones and tablets instead of desktop personal computers. While the company has been adding tools for customers to reach mobile Web surfers, such as ads tied to searches and YouTube videos, those efforts are still gaining steam.

“The challenge is for Google to reignite revenue growth as their existing businesses start to mature,” said Colin Gillis, an analyst at BGC Partners LP in New York, who rates the shares hold. “The core business is slowing down.”

Shares of Mountain View, California-based Google dropped as low as $860.03 in extended trading after the report. They had slipped less than 1% to $910.68 at the close in New York. The stock has advanced 29% this year.

The average smartphone-based search ad costs 40% less than a comparable promotion on a desktop computer, according to Covario Inc., a digital-marketing agency.

Second-quarter profit, excluding some items, was $9.56 a share, Google said. Analysts had projected $10.80 a share, according to data compiled by Bloomberg. Net income increased to $3.23 billion, or $9.54 a share.

Total Clicks

The average amount that advertisers paid each time a user clicked on a promotion on Google’s sites and those in its network decreased more than the 3% drop analysts had predicted, according to data compiled by Bloomberg. It followed a 4% decline in the first three months of the year. The total number of paid clicks jumped 23%, after a 20% gain in the first quarter.

In February, Google unveiled new mobile-advertising products that push customers to buy more marketing messages for wireless devices. The features, which had been optional, will become mandatory later this month, helping advertisers target mobile users based on location or at different times of day.

The new system is “one of the biggest changes to its ad system since company inception, and should simplify the ability for marketers to acquire customers across multiple screens,” Ross Sandler, an analyst at Deutsche Bank, wrote in a note earlier this month.

Attracting Users

Google is also making moves to attract more users to its mobile services, which in turn is aimed at boosting advertising. Last month, the company announced the purchase of Waze, a mobile application that helps users find routes on interactive maps. Google paid about $1.1 billion for Waze, people with knowledge of the agreement said. That would be the fourth-largest deal for the company, according to data compiled by Bloomberg.

Google also has been improving and expanding its Android operating system for smartphones. The software commands more than 70% of the market, while Apple Inc., maker of the iPhone, has less than 20%, according to researcher IDC.

One Android partner is Motorola Mobility, which Google acquired last year for $12.4 billion. The business is slated to release a new phone called the Moto X this year under new Google leadership. The device will use two processors to conserve battery life and will include sensors to help it better understand what a user needs, Motorola Mobility Chief Executive Officer Dennis Woodside said in May.

www.bloomberg.com

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