Advertising Experts: Ignore Google’s Earnings, It’s Doing Just Fine

From my Forbes.com blog The New Persuaders:

After reporting disappointing third-quarter earnings, and giving investors a few extra hours to sell their shares to boot, Google saw its shares hammered before trading was halted. But while Motorola Mobility, which Google acquired for $12.5 billion in May, clearly is a big drag on the company, ad folks say its core business is just fine.

Bryan Wiener, CEO of the digital marketing agency 360i, a specialist in search advertising in particular, says Google’s core business still appears healthy. The only hitch, he says, is that mobile ad prices per click are still 30% to 50% lower than desktop clicks, but he says that gap is narrowing as mobile cost-per-click continues to rise.

The main issue is not so much that advertisers view mobile ads as less effective. There are actually two other issues.

First, there’s still less competition for mobile ad space. And since Google ads are sold by auction, less competition means lower prices.

Why is competition less? That brings up the second issue: It’s not yet clear precisely what impact mobile ads have. They don’t work exactly the same as desktop ads, where people customarily conduct a search, click on an ad, and then a certain percentage buy the product. That’s easy to track.

On their mobile phones, however, people are more often searching for a store, rather than looking to complete a transaction online. They may well end up buying in that store–some companies are starting to provide ways to track that connection, and marketers anecdotally know it’s happening–but separate databases for online and store activity still means it’s tough to close the measurement loop.

Wiener thinks that will get solved eventually. Even in the short term, mobile search ads that are still Google’s bread and butter are better positioned to show their value than mobile display ads, which may appear in hard-to-track apps and still aren’t standardized enough for marketers to spend big bucks to reach broad scale. That means Google for now is likely to fare better in consumers’ rush to mobile than, say, Facebook and Yahoo. “Everybody is still bullish on mobile search,” says Wiener. “But it’s still very early in the game.”

Looking ahead to the fourth quarter and beyond, says Wiener, “our clients are cautiously optimistic” about search ads in particular despite the uncertainty of the economy and the election. …

Read the complete post at The New Persuaders.

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3 Reasons Google Missed Q3 Earnings Estimates

From my Forbes.com blog The New Persuaders:

Google’s shares plunged this morning by 9% after the search giant’s third-quarter earnings came in considerably lower than expected. The results were accidentally released hours earlier than expected, leading to a halt in the shares’ trading for a time.

Google earned a $9.03 per share profit before certain expenses, far below the $10.63 Wall Street consensus estimate, and down 20% from a year ago. GAAP profit was $6.53. Net revenues after paying partners for traffic were $11.53 billion, up 19% from a year ago. That also missed the Street’s estimate of $11.9 billion. Paid clicks, a key indicator, rose 33% from a year ago, and cost per click, another key measure but one whose meaning is murky, fell 15%.

So what happened? Here’s a quick assessment, which will be supplemented in a new post following the 1:30 p.m. Pacific earnings call:

* Costs jumped. They were up 71%, to $11.4 billion. It appears much of that increase came from Motorola Mobility, which Google acquired for $12.5 billion in May. After all, the acquisition added more than 20,000 employees. As Citi analyst Mark Mahaney said in a note to investors: “Bottom line divergence partly due to Amortization expenses, which came in at $317MM vs. our $197MM estimate. That contributed perhaps $0.40 of the EPS shortfall.” Update after the earnings call: But not just that. CFO Patrick Pichette specifically mentioned costs of selling the likely near-zero-margin Nexus 7 tablet Google released during the quarter–a single product line, so the company’s is clearly pushing it hard.

* Motorola losses were huge. The unit posted a $527 million loss on a GAAP operating basis. Mahaney again:  “Another major delta was Motorola, which generated $151MM Op Loss vs. our $28MM estimate.”

* Ad revenue didn’t set records. It was up 16% from a year ago. Although lower cost per click isn’t always an indicator of a problem, in this case, the fourth consecutive decline has investors wondering anew if it’s due to the lower prices mobile ads get or even competition from the likes of Facebook. …

Read the complete post at The New Persuaders.

No Larry Page, But Google Q2 Profits Beat Forecast on Light Sales

Image representing Google as depicted in Crunc...

Image via CrunchBase

From my Forbes.com blog The New Persuaders:

Providing a sign that online advertising continues to shine in a tough economy, Google reported a second-quarter net profit today of $2.79 billion, or $8.42 a share, up 11%, on a 35% jump in sales to $12.21 billion. Non-GAAP profit per share, the one analysts track, came in at $10.12, a little above the Street’s $10.04.

Those revenues included six weeks of its recent acquisition of Motorola Mobility. Google revenues alone were $10.96 billion, up 21%. Either way, revenues after payments to website partners were $8.36 billion, a bit lighter than analysts’ forecast of $8.41 billion.

In trading immediately after the close, shares rose about 5%, then eased back to a steady 3% gain. Google’s shares closed up today about 2%, to $593.06.

Although Street estimates were iffy given the addition of Motorola Mobility to Google’s results for the first time, Citi analyst Mark Mahaney was expecting a $9.99 non-GAAP profit per share on $12.45 billion in gross revenue. Without Motorola, he was expecting $10.76 billion in gross revenues, $8.23 billion in net revenues after payments to website partners. You can listen to the archived analyst call on Google’s YouTube channel.

The upshot after the call: Google executives sounded a confident tone about the business, though insight about Motorola was almost non-existent. In particular, Google appears committed to making mobile advertising pay off, shrugging off concerns about low mobile ad prices.

Google partners don’t seem worried about that either. Jared Belsky, executive VP at digital ad agency 360i, said in an interview that he thinks the rapid rise in mobile computing should be a net positive for Google simply because people are searching more hours of the day now. “This is a strategy for the long term,” says Belsky, who notes that its clients’ mobile ad search spending is now 14% of the total–an increase of 300% from a year ago. “Increasingly they’ll be able to monetize it.” Even more important, he says clicks on mobile ads have risen 300% as well as marketers provide better landing pages and people get more comfortable clicking on the ads as a result.

And the call begins.

Read the complete post at The New Persuaders.

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