Anomaly or a preview to the future?
OTB
Google drops 10% after surge in costs
Google shocked Wall Street on Thursday with a big shortfall in its latest earnings, as an unexpected slump in pricing in its core search advertising business combined with slowing growth internationally and another jump in costs to dent recent optimism about the company’s prospects.
The internet search giant also blamed the rising value of the dollar, foreign currency hedging costs and a writedown on its investment in wireless broadband carrier Clearwire for the disappointing numbers. The news led to an immediate 10 per cent drop in its share price in after-hours trading.
However, Larry Page, chief executive, claimed that recent heavy investments in new markets were showing results. That included further growth in display advertising, which he said had lifted revenues to an annualised $5bn, or double the level Google reported for that business 15 months ago. “These big bets are really paying off,” Mr Page said.
Google’s revenue shortfall amounted to a rare disappointment compared with the unexpected strength it had shown in recent quarters. In search advertising, it registered a surprise 8 per cent decline in the average cost per click, or the amount advertisers pay for each user who clicks on their messages.
Company executives argued that a decline in pricing in a single quarter did not point to a broader trend but that it reflected the results of a number of small changes made to its advertising programmes in the previous quarter. The fact that the overall impact was negative in one period was “circumstantial”, said Patrick Pichette, chief financial officer.
The decline was partly made up by a stronger than expected jump in the number of clicks recorded, which rose by 34 per cent from a year before, and Google executives argued that changes in cost per click should not be viewed in isolation.
On the pro forma basis on which the market judges the company, Google reported earnings per share for the period of $9.50, up from $8.75 a year ago but well below the $10.46 a share that analysts had forecast. A large part of that shortfall reflected the writedowns from Google’s hedging programme and its Clearwire investment, Mr Pichette said.
Meanwhile, operating costs rose to $3.38bn in the latest quarter, up 35 per cent from the year before, as the company continued to ramp up spending. The 1,114 new employees added in the final three months took the total increase in headcount to a record 8,100 for the year.
Google also disclosed continued rapid growth in the audience for its Google+ social network, which has been singled out by Mr Page as the company’s key initiative as it tries to deepen engagement with its users and counter the rise of Facebook. Google+ now has 90m users, Mr Page said, more than double the 40m that Google reported three months ago.
OTB
Google drops 10% after surge in costs
Google shocked Wall Street on Thursday with a big shortfall in its latest earnings, as an unexpected slump in pricing in its core search advertising business combined with slowing growth internationally and another jump in costs to dent recent optimism about the company’s prospects.
The internet search giant also blamed the rising value of the dollar, foreign currency hedging costs and a writedown on its investment in wireless broadband carrier Clearwire for the disappointing numbers. The news led to an immediate 10 per cent drop in its share price in after-hours trading.
However, Larry Page, chief executive, claimed that recent heavy investments in new markets were showing results. That included further growth in display advertising, which he said had lifted revenues to an annualised $5bn, or double the level Google reported for that business 15 months ago. “These big bets are really paying off,” Mr Page said.
Google’s revenue shortfall amounted to a rare disappointment compared with the unexpected strength it had shown in recent quarters. In search advertising, it registered a surprise 8 per cent decline in the average cost per click, or the amount advertisers pay for each user who clicks on their messages.
Company executives argued that a decline in pricing in a single quarter did not point to a broader trend but that it reflected the results of a number of small changes made to its advertising programmes in the previous quarter. The fact that the overall impact was negative in one period was “circumstantial”, said Patrick Pichette, chief financial officer.
The decline was partly made up by a stronger than expected jump in the number of clicks recorded, which rose by 34 per cent from a year before, and Google executives argued that changes in cost per click should not be viewed in isolation.
On the pro forma basis on which the market judges the company, Google reported earnings per share for the period of $9.50, up from $8.75 a year ago but well below the $10.46 a share that analysts had forecast. A large part of that shortfall reflected the writedowns from Google’s hedging programme and its Clearwire investment, Mr Pichette said.
Meanwhile, operating costs rose to $3.38bn in the latest quarter, up 35 per cent from the year before, as the company continued to ramp up spending. The 1,114 new employees added in the final three months took the total increase in headcount to a record 8,100 for the year.
Google also disclosed continued rapid growth in the audience for its Google+ social network, which has been singled out by Mr Page as the company’s key initiative as it tries to deepen engagement with its users and counter the rise of Facebook. Google+ now has 90m users, Mr Page said, more than double the 40m that Google reported three months ago.
