Google Misses On Earnings And The Stock Is Falling
Mike Nudelman/Business Insider
Google co-founders Larry Page and Sergey Brin.
Google just reported its first-quarter results for 2014, with revenue of $15.4 billion and earnings per share of $6.27.
Google missed on both its top and bottom lines, which is likely what quickly drove the stock down immediately about 6%. Google had previously closed up 3.75% at the closing bell.
During the first quarter, Google's cost-per-click, the average price it charges advertisers, declined about 9%. Paid-click growth increased, but by only 26%. Historically, it's been up about 30% in good quarters.
In other words, the growth in aggregate paid clicks on Google search ads is slowing. Analysts noticed that, and began asking about revenue "deceleration" on today's conference call. That's a dread word at Google, which first discussed the previously unthinkable notion that Google might not continue growing at breakneck pace forever in November 2012.
Analysts were concerned about the bottom line too. Google CFO Patrick Pichette and Nikesh Arora, Google's chief business officer, got a bunch of questions about why Google's margins were smaller than usual.
Basically, there were a bunch of one-off costs in the quarter, the pair said. Nest — the trendy thermostat company — was an unusually large acquisition, and there were some legal costs too.
Here are the key stats:
revenue: $15.4 billion vs. analysts' estimates of $15.54 billion
adjusted EPS: $6.27 vs. analysts' estimates of $6.44
revenue ex-TAC: $12.19 billion vs. analysts' estimates of $12.25 billion
Here is how the revenues look in a chart:
Highlights from the conference call:
Google's CFO, Patrick Pichette, and Nikesh Arora, Google's chief business officer, led the call.
Pichette started with the numbers.
Consolidated revenue grew 19% year over year. Minus currency fluctuations, Google sales would have been up 21%. TAC was 23% of total ad revenue. Pichette blamed extra costs such as acquisitions hurting the bottom line.
Starting in the second quarter, Google will begin disclosing paid clicks and CPC growth by property.
Pichette talked about Google Play:
More than 65 countries can now watch movies through Google Play. Arora also said that Google now has 49,829 full-time employees as of March, up from 47,756 in December.
Highlights from the Q&A section:
Expenses and the Nest deal:
Expenses in the quarter involved a lot of legal expenses and mergers and acquisitions. Pichette hinted that Google's $3.2 billion acquisition of Nest affected expenses. Pichette said Nest was "a pretty large transaction" for Google.
Mobile advertising:
Analysts asked about deceleration, and Pichette pointed to mobile advertising, which is a growing part of Google's business, but one where prices are cheaper. Mobile pricing needs to be better than desktop pricing, Pichette says. The good news, Pichette says, is that a lot of people are spending time on mobile. Advertisers are starting to see value in providing a great experience on mobile devices. With all the advertisers coming on board, Google is showing that advertising on mobile results in transactions.
Google's headcount growth:
On why Google's headcount grew so much this quarter: the acquisition of Nest, DeepMind, and other companies had quite an effect on the number of employees.
Google Preferred for YouTube:
Google Preferred, which the company will further detail in about a month, is Google's way of trying to create a premium concentration of content that brands can advertise against to ensure brand safety on YouTube.
Enhanced campaigns:
In response to a question about the effect of enhanced campaigns, Arora says it's working. Enhanced Campaigns is a system that lets advertisers launch campaigns for both desktop and mobile.
More on costs and expenses:
Analysts kept asking about costs and expenses, and Pichetti said Google was very comfortable with its cost structure. Its total costs and expenses totaled $11.3 billion, up from $9.2 billion the year earlier. The reason Google's costs are all over the place is that the buying and divestiture of Motorola Mobility, acquisitions, and "moonshot" projects such as Wi-Fi balloons and driverless cars.
Revenue from YouTube and DoubleClick:
Google doesn't disclose specific revenues for DoubleClick or YouTube, but Pichette insisted that Google was very pleased with YouTube.
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