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Google showed on Thursday that it was making money from people searching online with their mobile devices, providing evidence that it could follow users wherever they searched the Web.
Google, which presented quarterly earnings that easily surpassed analysts’ expectations, reported that revenue climbed 33 percent and net income rose 26 percent. Although it does not typically break out revenue from different types of ads, it said mobile was on track to generate more than $2.5 billion in revenue in the coming year and grew 2.5 times in the last year.
“When I look back over the last quarter, the word that springs to mind is ‘gangbusters,’ “ Larry Page, Google’s chief executive, said in a call with analysts after the earnings were announ
ced. “It’s not bad for a 13-year-old,” he said, referring to Google’s age.
“We are also seeing a huge positive revenue impact of mobile,” he said.
Google, which makes the Android mobile operating system and offers mobile search, apps and ads, has nearly 100 percent market share in mobile search and is investing heavily in mobile. But until now, it offered little detail on how much mobile ads and Android, which it gives handset manufacturers free, contribute to revenue.
The announcement should appease those analysts concerned about whether Google’s search business would keep up its steady rate of impressive growth. More searches are being done on mobile phones, where people are less likely to click on ads and the ads tend to cost less, and advertisers are spending more money on display and social ads instead of search ads. Almost all of Google’s revenue comes from advertising and the vast majority from search advertising.
“The quantification of mobile revenues gives us an indication that Android is cementing Google’s position in mobile advertising,” said Jordan Rohan, an analyst at Stifel Nicolaus. “Google’s ability to diversify away from the parts of its businesses that are maturing is impressive.”
Last week, Stifel Nicolaus downgraded Google stock from buy to hold, citing concerns about a slowdown in search. “The paid search industry is maturing and slowing down, without a doubt,” said Roger Barnette, president of IgnitionOne, which provides digital marketing data. “Advertisers have other options that they haven’t had before.”
Nikesh Arora, Google’s chief business officer, said that its desktop business maintained momentum and that Google.com grew faster than a year ago. Google’s financial report also showed that desktop search advertising continued to chug along.
That provided some comfort to shareholders and analysts who have been spooked by Google’s charging ahead with aggressive hiring, new businesses and high-priced acquisitions, like its $12.5 billion bid for Motorola Mobility. On Thursday, Google said it hired 2,585 people in the third quarter, up from 1,526 new people in the same quarter a year ago, bringing its total to 31,353. The third quarter was its second-highest quarter ever for hiring recent college graduates.
“I don’t love a lot of the things that Google’s doing, but their core business is a powerhouse,” said Colin W. Gillis, an analyst at BGC Partners. “When they bust out revenues above expectations, all the sins are forgiven.”
Such worries about expenses — along with concerns about continuing antitrust investigations, competition from Facebook and deteriorating economic conditions — have caused Google’s share price to drop 8 percent this year. But in after-hours trading, shareholders responded favorably to the earnings report, as shares rose 6 percent. Google also highlighted the growth of several of its newer businesses. Google+, its social network and Facebook competitor, has 40 million users who have uploaded 3.4 billion photos, Mr. Page said, and Google plans to begin incorporating it into other Google products. Chrome, its browser, has 200 million users, and people have activated 190 million Android phones.
Google so far seems to be mostly sheltered from the slumping economy, which has hurt other Web sites and publications that rely on advertising. Still, Mr. Barnette said, if the economy continues to suffer advertisers could cut back or move in greater numbers to new kinds of ads. “Growth going forward will more closely mimic the overall economic industry and ad budgets in general,” he said.
Clicks on ads on Google and other Web sites increased 28 percent over the same quarter last year and 13 percent over the second quarter this year, Google said. The amount Google was paid for clicks increased 5 percent over last year, but decreased 5 percent over the second quarter of this year.
An increase in paid clicks often corresponds with a decrease in the amount paid for those clicks, said Susan Wojcicki, senior vice president for advertising at Google. The increase in mobile searching could also have caused a decrease in the cost per click, because mobile ads tend to cost less than desktop ones. Mr. Gillis said consumers spent more time comparing prices and made purchases less often.
Google has seen some softness in ad sales in Western Europe because of its economic struggles, Mr. Arora said. The North America business has been stable, and business in Australia, India and Brazil has been growing rapidly, he said.
Google reported net income for the period ending Sept. 30 of $2.73 billion, or $8.33 a share, up from $2.17 billion, or $6.72 a share, a year ago. Excluding the cost of stock options and the related tax benefits, Google’s third-quarter profit was $9.72 a share. Analysts had expected $8.74 a share.
The company said revenue was $9.72 billion, up from $7.29 billion in the year-ago quarter. Net revenue, which excludes payments to ad partners, was $7.51 billion, up from $5.48 billion, above analysts’ expectations of $7.2 billion....READ MORE RESOURCES
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