Google’s earnings for the 2nd quarter may have improved enough to meet the target set down by analysts but their revenue has actually gone down. It was last Thursday when the announced performance of the Search and IT Giant were enough to allay the fears of investors, fears that actually caused Google’s stock to fall significantly in a year where major market indexes posted gains.
By the time the reports came out, Google’s shares already managed to climb to 3 percent. The reports also took into account Google’s recent acquisition of celphone manufacturer Motorola Mobility Holdings Inc. for the first time in the 39 days since Google first became its owners.
Without Motorola, Google’s revenue during Q2 would have shown the slowest growth since 2009, with the slowdown being attributed to the economic turmoil in Europe, which already weakened currencies overseas and resulted in revenues going down when sales are converted into US dollars.
Another factor that caused the “somewhat difficult” conditions is Europe’s heavy government debts, as stated by Google CFO Patrick Pichette in a recent conference call with analysts. Google CEO Larry Page, on the other hand, was unable to join the conference call as he is still recovering from an unspecified throat problem.
During the three months ending in June, Google managed to earn $2.8B or $8.42 per share, which is already an improvement over last year’s $7.68 per share, or $2.5B. The earnings are estimated to be $10.12 per share if not for Google’s accounting costs for employee stock compensation and the recent deal with Motorola. The figure is much closer than the $10.10 average estimate provided by the analysts that FactSet polled.
Google’s revenue, however, climbed 35 percent from last year, though analysts estimate that the actual increase would have been 21 percent if it weren’t for the Motorola deal. It is currently considered as the slowest rate of revenue growth for Google since Q4 2009, when the company was still recovering from the Great Recession.
The numbers during the second quarter is attributed to recent technology changes that modified Google’s search algorithms, in order to maximize the efficiency of Google’s ad network as well as prevent website owners from gaming the search engine placements and rankings at the cost of providing useful and relevant content to users.
The improvements rolled out by Google seem to have a good effect on the search engine, and it managed to pay off in this quarter, with the total number of clicks on Google’s ads increasing to 42 percent compared to last year’s.
The clicking activity is vital to Google’s business model since the company only gets paid based on the number of clicks on an advertising link. The increase in the volume of ad clicks also helps Google greatly in weathering the deepening decline in its ad rates, as the average price per click fell by 16 percent from last year’s. The drop marks the third consecutive quarter of year-over-year drop in Google’s ad rates, with the previous drops ranging from 8 percent to 12 percent.