Google misses revenue target as ad rates slide

Written by Reuters | San Francisco | Updated: Apr 18 2014, 08:16am hrs
Googles first-quarter revenue fell short of Wall Street targets and margins narrowed as the price of its ads continued to decline, underscoring the challenges internet companies face as the world shifts toward mobile devices.

Shares of Google were down 3% to $539.80 in after hours trading on Wednesday, after initially sliding roughly 6% on the news.

The number of paid clicks by consumers on Googles ads increased by 26% in the first quarter, disappointing some analysts who had hoped for stronger volume growth. And the average cost per click declined 9%, extending a downward trend as mobile advertising, typically cheaper than traditional online ads, make up a bigger slice of its business.

The worlds largest search engine, along with Facebook and Twitter, which are due to report financial results in coming weeks, are revamping their products and advertising business to account for smartphones.

Its an average quarter from a great company, said BGC Partners analyst Colin Gillis. Its the same old story. Paid clicks were a little lighter than people might have hoped, CPC declines were a little higher than people would have liked, expenses continued to rise.

Operating income slipped to 32% of revenue on an adjusted basis, from 34% in the year-ago period.

Google is spending big to push into various new markets with innovations such as wearable computers, ultra high-speed internet access and home automation. In January it acquired Nest, which makes smart thermostats and smoke detectors, for $3.2 billion.

The Nest purchase and some legal expenses bumped up Googles spending during the quarter, Finance chief Patrick Pichette said during a conference call on Wednesday. But aside from those items, our expenses continue to demonstrate the same disciplined agenda weve always had, he said.

Sales of digital media such as movies and games in Googles online Play store, as well as hardware devices such as the Chromecast television gadget, boosted Googles other revenue 48%year-on-year to $1.6 billion.

Googles revenue climbed 19% to $15.42 billion in the first quarter from $12.95 billion in the year-ago period. Analysts polled by Thomson Reuters I/B/E/S had estimated $15.54 billion.