Google's results hurt by falling ad rates

Though the search giant has reported major revenue growth, the average price of the adverts it sells has declined, crimping profits

Google's revenue continues to grow year-on-year, but profits are suffering due to the falling cost of advertising.

Larry Page Google

Google's Larry Page has said the company still needs to make "hard choices" about where it will focus its efforts, as it reported a falling cost of advertising. Image credit: Stephen Shankland/CNET News

The company reported unaudited yearly revenues of $37.9bn (£24.4bn) for 2011 on Thursday with record fourth-quarter revenues of $10bn. Though paid clicks on adverts were up by 34 percent year-on-year the money Google makes on each of these clicks, or cost-per-click, fell eight percent.

It had a net income of $9.7bn for the year, up from $8.5bn in 2010, but the net income for the quarter of $2.705bn was slightly down on the previous quarter's $2.729bn.

"There are so many opportunities for Google today. But to make a real impact in the world, we need to make hard choices about where to focus our efforts," Google's chief executive, Larry Page, said in a call discussing the results. He cited Android, Chrome, Gmail, YouTube and display advertising as areas where Google has done well.

Because Google ads are partially priced on demand, a growth in the amount of ads usually reduces cost-per-click, Google's senior vice president of ads, Susan Wojcicki, said. A combination of fluctuating foreign exchange values and the fact that many of the additional paid clicks occurred on cheaper advert venues, such as those served to mobile devices, caused the fall, she said.

Though advertising makes most money for Google other sources of revenue are increasing, Page said, adding that Google is signing up 5,000 new customers every day for Google Enterprise products like Google Docs and Gmail.

Android is being activated on 700,000 phones per day, he said, with over 11 billion app downloads from Android markets.

No mention was made on the call of Google's platform-as-a-service, Google App Engine.


Introduced in 2011, Google+ is the latest of Google's attempts to enter the social-networking market and compete with Facebook. Page said Google+ has more than 90 million users, 60 percent of whom 'engage' with the service daily.

Google's capital expenditure (capex) for the quarter was $951m, up from the previous quarter's $680m, with the majority of this probably going toward the new state-of-the-art datacentre the company is building in Hamina, Finland.

"We'll continue to make significant capex investments, and these have shown to be lumpy from quarter to quarter depending on when we're able to make these investments," Patrick Pichette, Google's chief financial officer, said.

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