Google misses earnings, revenue targets again on Q1 report

Google misses earnings, revenue targets again on Q1 report

Summary: There were problems elsewhere on the Q1 balance sheet as well, namely in Google's core department: search.

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Following a miss thanks to Motorola Mobility last quarter, the pressure was on for Google to deliver better results on Wednesday after the bell.

The short story: The pressure was too much.

Most of the Motorola unit will be on its way out soon enough following the announcement of its sale to Lenovo in January, but the beleaguered parts of the hardware maker are still with the Goog.

Thus, Google reported a first quarter net income of $3.45 billion, or $5.04 per share (statement). Non-GAAP earnings were $6.27 per share on a revenue of $15.42 billion, including traffic acquisition costs.

Excluding TAC, which rang up to $3.23 billion, revenue was $12.19 billion.

Wall Street was looking for earnings of $6.41 per share on a revenue of $15.54 billion.

As a result, Google shares started to tumble in after-hours trading. There were problems elsewhere on the balance sheet as well, namely in Google's core department: search.

Cost-per-click was down by nine percent annually, although it was flat sequentially. Paid clicks, however, were down one percent sequentially but shot up by 26 percent year-over-year.

zdnet-google-q1-2014-1

Despite the missed targets and the weak link that is Motorola, CEO Larry Page maintained an optimistic front in prepared remarks:

We completed another great quarter. Google's revenue was $15.4 billion, up 19% year on year. We got lots of product improvements done, especially on mobile. I'm also excited with progress on our emerging businesses.

Once again, Page did not participate in the quarterly shareholders conference call, which was led by chief financial officer Patrick Pichette and chief business officer Nikesh Arora.

Here's a closer look at Google's Q1, by the numbers:

  • International revenue: $8.76 billion, accounting for roughly 57 percent of total Q1 revenue, up from56 percent in Q4 2013 and 55 percent in Q1 2013.
  • Net loss from discontinued operations (including Motorola): $198 million, compared to a net loss of $182 million in Q1 2013. If Motorola was designated as its own operating segment, income for the quarter would have equaled $1.45 billion -- roughly $74 million higher than what was included in net loss from discontinued operations.
  • Headcount: 49,829 full-time employees (46,170 in Google and 3,659 in Motorola Mobile) as of March 31 -- up from 47,756 full-time employees (43,862 in Google and 3,894 in Motorola Mobile) as of December 31.
  • Enterprise updates: Although he didn't provide metrics, Arora went over some of the business products released during the quarter, including the Chromebox for enterprise video conferencing in February and major price reductions for Google Cloud Platform in March.

Arora delved a little deeper on the cloud unit, which is arguably more competitive now than it has ever been before. He suggested this is just the beginning:

The important part to at least acknowledge in the space of cloud computing is we think that it's very, very, very, early days. If you think about the potential scope and scale of what this opportunity is, that's pretty much every business which is going to be around for the long term has to operate in the cloud. There's no efficiency compared to the efficiency of the cloud in compared to owning your own infrastructure, running it by yourself. So this shift is going to happen. If you look at the opportunities out there and the options, there's very few options. So there's a lot of room for all of us to have a great time for many, many, years before we start worrying about differentiation and why my sort of thing is better than yours.

For the current quarter, Wall Street expects Google to report earnings of $6.36 per share on a revenue of $15.75 billion.

Charts via Google Investor Relations

Topics: Mobility, Android, Cloud, Google, Google Apps

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15 comments
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  • Google knows that it's market value is way overpriced,

    and so, they've been trying hard to diversify from search/advertising, and to do that, they've been acquiring anything that smells even a bit like high-tech. But, those acquisitions won't be productive for Google for a long time, meanwhile, they'll still be overpriced and not very profitable.
    adornoe@...
    • Google is highly profitable.

      Bit they continue to throw good money after bad with escalating expenses and shrinking revenue growth. As more and more companies realize Google's core product (that funds their hair brained work into hover boards -really? hover boards?-) is far overpriced the CPC will continue its nose dive.
      Bruizer
      • I know

        But it's nice to have some fun, eh?
        Boothy_p
  • Google growth too slow for its value

    They still have a huge potential, but mobile pose big risks to them (and many others - mobile has the potential to shake up the IT market completely).
    Google controls in browser data but not in app data, they are trying to do big things there, like with their game platform (games are huge in mobile devices) but there are big risks for their business model.
    Investors know a lot about money, they must have all the numbers about mobile growth, ... I wonder if they understand that owning the dominant mobile platform in some way is the same as owning the biggest chunk in advertising services. With Google market value, investors are for sure betting on a huge potential - will it materialize?
    AleMartin
    • Google gambled on Android, but Android is for small screens,

      and small screens don't offer much real estate, if any, for advertising. So, when it comes to the potential for growth in mobile advertising, there isn't much there, and growth for Google will have to be in the bigger screens, like in 9 inch and bigger tablets and in Chromebooks and PCs.

      Basically, Google's Android gamble has contributed very little to their revenue. Then, their search/advertising business model has very little room for growth, and whatever growth they've experienced, is not much to write home about.

      Hence, they need to diversify away from search/advertising in order to hope for growth, but, what their recent acquisitions won't be productive for a while, if ever.
      adornoe@...
      • All mobile, not just smartphones

        Google want to sell advertising, as much as they can. Even if sometimes doesn't seem they clearly have that objective in mind.
        3 things they want in order to sell more ads: Increase web population, decrease "noise" between users and ads, improve ads so they get more "clicks".

        Mobile advertising grew more than 100% in 2013 and for the next 5 years will probably keep growing at a 50% average rate or more - Google and Facebook are getting the biggest chunk and it's paramount for them they keep like that. (I don't have the numbers but I believe traditional desktop ad spending is basically flat - don't know why you say there is no growth in mobile advertising!).

        They have plenty of money to invest in long term or even waste - they are not alone there and I don't pity them one bit.
        AleMartin
        • Facts can't be denied, and Google is stuck with trying to grow

          advertising, but, they're hitting a wall.

          Tiny screen advertising is not lucrative at all, no matter how many devices are sold, and no matter how many of them are powered by Android.

          Whatever happens with the tiny screen devices, most online advertising will still be going to the larger screens, those being the bigger tablets and desktops/laptops and perhaps the tiny-market-share-Chromebooks.

          Thus, the reason that Google has realized that they need to diversify, and they're throwing stockholder money at anything that even slightly smells of "high tech".

          Growth for Google is not in advertising or search, even if they gain a bit here and there. Online advertising cannot grow beyond the number of people that do visit Google's websites regularly. It's like trying to grow more oranges from the same tree: perhaps there will be years of extra oranges, and other years, same quantity or less.
          adornoe@...
          • Facts

            Did I mentioned "tiny screen" devices in particular? No, I said mobile devices.
            Small screens obviously have a downside, but if you look at advertising performance in mobile, iPad and kindle fire 8 beat bigger screen devices - screen size is not the biggest issue.
            Another fact - advertising spending in traditional desktops growth was around 2%, in mobile more than 100%. Obviously Google needs to show ads - duh, obviously. But the size of web connected devices is growing fast - in China 40% yoy, 80% are mobile devices. In the US there are more connected devices than population, ... iot and augmented reality are coming, ... the problem for Google is not the size of the market, is winning it.

            Google is not diversifying like you said - you are wrong, let me say it again wrong. Google mission it's selling ads and directly or indirectly is what they seek, even if sometimes NEST devices and drones, or data transmission over body don't seem like it. Obviously they can sometimes play a bit on the sideways.

            Your comparison with oranges is also flawed - you probably don't know much about agriculture, but yes you can increase orange production with the same trees. It's also flawed because the number of trees is growing - Global smartphone shipments rise to 267 million in Q1, 2014.
            AleMartin
          • My oranges analogy is still very true...

            and I wasn't talking about an orange grove; I was talking about a single tree, where production is limited to what the single tree can produce.

            When it comes to 2% growth in advertising spending in PCs, vs that of mobile, hopefully you're smart enough to understand that, the 2% growth would still yield a bigger absolute number than the 100% growth in the mobile advertising market. (BTW, I'd appreciate links to back up your assertions on that 2% vs 100% figures.)

            Coming back to smartphone growth is not serving your argument, and just backs up my argument, where I keep saying that, advertising in those tiny screens is just not possible or fruitful. Even if 100 billion smartphones were sold per week, Google wouldn't be able to take advantage of them.

            I didn't say that Google wasn't diversifying. What I did say is that, Google has had to diversify in other directions, because they're finding that growth in search/advertising is very limited or not growing to a point where revenue and profits show any kind of decent increases. So, they've had to diversify via acquisitions, which won't be fruitful for a long time, if ever. Basically, Google is still a one-trick pony, with advertising via search results.

            BTW, drones would not be the advertising targets; they would just be a form of delivery for broadband to devices. The devices are the end-terminal for placement of advertising, and the devices best suited for advertising are the ones with bigger screens, namely the bigger tablets and laptops/desktops/Chromebooks.
            adornoe@...
          • Oranges also not your forte

            Yes you can increase the output of a single tree - don't even understand why you even mentioned it - well not really important anyway.
            You don't understand the power of big growth - get a calculator start with 1 and 10 per example and successively multiply by 1.02 and 1.5 respectively - the smaller number will become bigger very fast... but let me show the links.
            static1.businessinsider.com/image/52af32b56bb3f7927c43dd6c-538/emarketer-mobile-chart.jpg
            As you can see traditional desktop advertising is growing very slow and protection is that by as soon as 2017 it will be overtaken by mobile advertising.
            In the following link you can find the 105% growth plus more info:
            techcrunch.com/2014/03/19/global-mobile-ad-spend-jumped-105-in-2013-on-track-for-31-5b-in-2014-led-by-google/

            If you think advertising potential for Google and others is getting to a limit open the next links:
            www.marketingcharts.com/wp/traditional/top-drivers-of-global-ad-spending-growth-from-2013-through-2016-41911/
            www.marketingcharts.com/wp/online/global-mobile-ad-spend-projected-to-exceed-radio-magazines-by-2016-38577/


            About advertising being shifted to mobile:
            marketingland.com/desktop-mobile-changing-guards-upon-us-74679

            Again the challenge for Google, facebook and others, is not about the potential of advertising market is to grab it, and mobile is a challenge.

            Like i said before Google wants to sell ads, for that there are 3 important pillars - increase connected population, decrease noise between user and ads, and improve ads targeting. Almost everything they do have that in mind - from drones to information collecting.

            Most of your post are again banalites
            AleMartin
          • Simple logic is not your forte...

            and my analogy of the orange tree is spot on for Google's problems.

            Google is still stuck with trying to advertise to all the existing PCs that exist in the world, as long as they at some time or another click on a Google service. Google is also stuck in trying to advertise on mobile tiny screens. The tiny screens don't have much available real estate to advertise on, so, that makes them impractical for Google or any other service to use. That brings Google back to, basically, a market which is mostly composed of PC users, where advertising is a bit more practical. But, that "orange tree" that is otherwise the current available customer base which Google could hope to advertise in, is still not growing, and growth in mobile technology won't help Google when it comes to advertising. Google's best hope in the tiny screen market, is to sell apps, but that too is a very limited market, since, most people are not that much into purchasing a lot of apps.

            There is a major reason that Google is not increasing profits, and that's because, the market for advertising is limited, and if there is growth in it, it's still minor growth.

            Google knows that it's search/advertising revenue isn't a high-growth area, and that's why they're desperately trying to diversify by purchasing anything that even remotely smells of high-tech.

            Like I said, Google could claim that there are 100 billion Android smartphones and tablets in the wild, but advertising in them will still be an impossible task; perhaps in tablets it's a bit more feasible, but, they're still tiny screens and consumers won't be happy seeing advertising occupying any bit of their precious tiny screens.

            All of your posts are based on your lack of understanding that, no matter how many devices are sold, Google can't take advantage of the numbers. Your posts are also full of your undying love for Google, and fanaticism isn't going to help them a bit. The numbers are not in Google's favor, and that's undeniable, no matter how much your heart beats for them.

            Like I said before: keep your Google stock, because, someday, in the distant future, some of their purchased ventures might pay off (though I doubt it).
            adornoe@...
          • The links I posted are not for things I wrote

            Maybe you know better than others.
            Your orange image could be good to show the opposite - do you want links for that too ;-)?
            I've sent you plenty of information, some are projections, others is really data from recent years, showing that advertising in mobile is growing fast and will probably surpass traditional desktop advertising - but you keep insisting there is no future there! It seems like your recent numbers about Nokia selling more phones from q3 to q4, even if Nokia said they went from 8.6 to 8.2 millions!
            I don't care if you believe or not in my word, but wow when there are such strong evidence you are missing it by so far I confess your posts look "strange".
            Do you have a problem with my personal preferences or stock portfolio - do you care that much for me :-)?

            But show me the numbers to support your reasoning - or do you just dream about many of the things you post?!
            AleMartin
          • Another graph for you

            http://gaia.adage.com/images/bin/image/rightrail/Year_of_Mobile_Chart.png?1386976047

            I guess you make your assumptions about subjects around here as you do about my personal information - without any good basis and most of the times wrong - No, I don't have Google shares :). And even if you were right about that, it's not what is being discussed here, actually I rarely (if ever) discuss personal stuff about me or others unless within context (and even then...) ...

            Anyway - you mentioned Google stock (that I believe are overpriced) - if you look at their evolution, you will notice that 2013 was a good year for those stocks, in the last 12 months period, they improved near 35% - it's not stellar, but I'm sure many would like to watch their savings grow 35% in 12 months. If you take last 10 years data, Google stock almost doubled yoy in average. I never owned Google stock but sometimes I wish i did.
            What stocks have you bought 10 years ago?
            AleMartin
          • Google stock is still way overpriced for their performance,

            and the earnings report don't jive with the value of the stock.

            Also, tiny screens are not conducive to good or adequate advertising, no matter how many billions of those tiny screens are sold, and no matter how many reports and/or predictions are made by business people and tech bloggers. People don't buy high-priced devices so that they can be overloaded with advertising, and if any advertising does appear on tiny screens, or even on larger screens, it's mostly ignored. For example, I've learned to ignore, in fact, I don't even look at the first 2 or 3 lines that appear in a Google search results page, and I've learned to concentrate on the material which is of importance to me. Also, I haven't seen any advertising appear on my LG G2 device since I purchased it 5 months ago, and I like it that way. And, I'm pretty sure that the vast majority of people don't even want to see the slightest hint of advertising in their tiny screens.

            Fact remains that, Google has hit a wall, and any increase in advertising via search, is very limited, and that's why, they've had to move towards diversifying their products and services; they know, and have known for a while, that advertising via search is not a path for good growth.
            adornoe@...
          • Glad you changed the focus

            to "advertising via search" ;-)
            And I'm sure you're the world setter of behavior in front of advertising - keep basing the world trend on your personal choices.
            I still love mini-discs - I'm sure they will win the world :-D
            AleMartin