Google's third-quarter results may have proven that a deepening decline in the Internet search leader's average ad prices matters less than how frequently people are clicking on the commercial pitches.
Google’s third-quarter results may have proven that a deepening decline in the Internet search leader’s average ad prices matters less than how frequently people are clicking on the commercial pitches.
The numbers released Thursday impressed investors who had been fretting about a downturn in Google’s ad prices that began two years ago. Those concerns evaporated, at least temporarily, with a third-quarter performance that exceeded the analyst projections steering Wall Street.
Google’s ad prices are still sagging as marketers pay less for commercial pitches on mobile devices, but the number of revenue-generating clicks on those ads is rising at a much faster clip.
The equation resulted in a 36 percent increase in Google’s earnings for the three months ending in September.
Most Read Business Stories
- 55,000 in Washington state may have to pay back thousands in jobless benefits
- 1 house, 45 offers: Homebuyers in Western Washington hard-pressed as supply remains scarce
- Boeing CEO gave up millions in pay; here's what he and other top execs earned
- Amazon's telehealth arm quietly expands to 21 more states
- Inflation isn't the big risk, with economy's recovery still uncertain
Google’s stock surged 8 percent to $959 in extended trading after the report came out. That leaves it poised to reach an all-time high in Friday’s regular trading session.
The robust rally represents an abrupt about-face. As the overall stock market rose, Google’s shares had slipped slightly during the past three months. The reason: Google’s previous quarterly report in mid-July revealed the deterioration in the company’s ad prices was getting worse.
Google’s average ad price has now declined from the prior year in each of the last eight quarters, primarily because advertisers aren’t yet paying as much for mobile ads because the screens on smartphones and tablet computers are smaller than those on laptop and desktop computers.
As more people rely on mobile devices to connect to Google’s search engine and other services, it’s driving down the company’s average ad price, or “cost per click.”
In Google’s latest quarter, that measure fell 8 percent from last year. That was worse than the 6 percent drop in the previous quarter.
But the number of so-called “paid clicks” on Google’s ads helped offset the lower prices in the third quarter. The clicking volume increased 26 percent from last year, an indication that Google’s data analysis is doing a good job matching ads with the interests of its services’ users.
Google Inc. earned nearly $3 billion, or $8.75 per share, during the three months ending in September. That compared to income of $2.2 billion, or $6.53 per share, at the same time last year.
If not for its expenses for employee stock compensation, Google said it would have earned $10.74 per share. That figure topped the average estimate of $10.36 per share among analysts polled by FactSet.
Revenue for the third quarter rose 12 percent from last year to $14.9 billion. After subtracting commissions paid to Google’s ad partners, Google’s revenue stood at $11.9 billion — about $227 million above analysts’ predictions.
Motorola Mobility, a mobile device maker that Google acquired for $12.4 billion last year, remains a financial drag. The division lost $248 million in the quarter, and still hasn’t made any money under Google’s ownership.
In a mild surprise, Google CEO Larry Page disclosed Thursday that he doesn’t plan to regularly participate in the company’s quarterly earnings calls with analysts in the future.
Page, 40, missed an earnings call last year because of an ailment on his vocal chords that made it difficult for him to talk. Although his voice remains raspy, Page didn’t mention that as a reason for skipping the calls. He said he wants to devote more time to running the company and helping Google’s engineers build great products.
Google’s stock gained $70.21 to $959 in extended trading. The stock has never surpassed $928 in regular market trading since Google went public at $85 per share nine years ago.