Google's profits jump 60pc, but mobile clicks cast a cloud

Net income has reached $3bn in the first quarter, but the rise of browsing on phones where ad clicks come cheaper could turn into a problem, if the trend does not reverse as Google expects
Written by David Meyer, Contributor

Google has released its latest quarterly results, showing a big boost in revenue and in the number of paid clicks on Google Ads, although the money earned from each click is decreasing.

Google bosses

Google has reported net income of $3bn in the first quarter of 2012, while bosses Eric Schmidt (left), Larry Page (centre) and Sergey Brin have announced a new class of company stock. Image credit: Google

Revenue for the first quarter of 2012 totalled $10.7bn (£6.7bn), 11 percent of which came from the UK, the search giant said on Thursday. Net income was up 60 percent from $1.8bn a year ago, to $2.89bn.

"Google had another great quarter with revenues up 24 percent year-on-year," chief executive Larry Page said in a statement. "We also saw tremendous momentum from the big bets we've made in products like Android, Chrome and YouTube."

The company also revealed plans to create a new class of stock, which will allow it to issue more shares to employees and the public without reducing the voting strength of existing shareholders.


Advertising is Google's core business, and the number of paid clicks was up 39 percent year-on-year. However, the aggregate cost-per-click (CPC) — the rate the company charges ad customers — was down 12 percent.

In an earnings call, Google chief financial officer Patrick Pichette said there were a variety of reasons for this. One of these is that people are increasingly using the internet on their phones or tablets, rather than on desktop computers, he noted. Mobile CPCs typically are cheaper for marketers than their desktop counterparts — as much as 40-percent less, according to research last year by the Rimm-Kaufman Group.

Pichette also cited growing adoption of the web in poorer developing markets as another factor for the drop, according to a Seeking Alpha transcript of the earnings call.

"The dynamics around CPCs and paid clicks are just simply very complex because of all of these big factors and change continually," he said. "We believe that shifts in CPC, or paid clicks taken independently, simply don't reflect the fundamental health of our business, which we believe is actually very healthy."

We believe that shifts in CPC, or paid clicks taken independently, simply don't reflect the fundamental health of our business.
– Patrick Pichette, Google

Clicks on mobile ads are worth less because mobile search is where desktop search "used to be in 2002, 2003, 2004", Pichette suggested. Over time, this could be reversed and they could generate more income, he noted, given that mobile devices have geolocation capabilities. These results could be valuable to advertisers, as they could indicate whether potential customers in their neighbourhood. "You spend most of your money locally," Pichette noted.

Page used the call to give an update on some of Google's big products. He said 850,000 Android devices are now being activated each day, Chrome has 200 million users and YouTube now has "over 800 million monthly users uploading over an hour of video per second".

Page did not give any indication as to how many people actively use Google+ as a social network. However, he did say "well over 170 million people" are using Google services that plug into Google+ for their social features.

Stock split

As for the stock split, the new 'Class C' of Google stock will complement the existing classes A and B. Class A stock is for the general public and comes with one vote per share. Class B is only for Page, co-founder Sergey Brin and chairman Eric Schmidt, and comes with 10 votes per share.

Google's founders and Schmidt have maintained that voting-rights discrepancy for years, saying it is needed to ensure they are in ultimate control of the company. They have argued that blocking potentially aggressive outsiders from gaining significant voting control allows them to take a more long-term view at what Google does.

The new stock will be formally proposed at Google's annual meeting on 21 June. David Drummond, the company's legal chief, pointed out in an investor letter announcing the move that Google expects it to be approved, "given that Larry, Sergey and Eric control the majority of voting power and support this proposal".

The move will effectively double the amount of Google's stock, as existing shareholders will automatically get one new Class C share for each Class A or B share they own.

However, the new shares come without voting rights. As the investor letter notes, "these non-voting shares will be available for corporate uses, like equity-based employee compensation, that might otherwise dilute [Google's] governance structure".

To avoid unfairness for normal investors, Page, Brin and Schmidt have agreed that they cannot sell off their non-voting Class C shares without also selling an equal number of their vote-heavy Class B shares, or converting those shares into normal-voting Class A shares.

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