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
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 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.
Cost-per-click
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".
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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