SEARCH ENGINE SHIFT
Google posts a profit but advertising sales are hurt by the switch to smartphones,
Google Inc. says it’s working to close the gap between desktop and mobile advertising after reporting firstquarter revenue and income Wednesday that missed projections on a drop in the average price for online ads. “I believe the medium to long-term mobile pricing has to be better than desktop,” the search leader’s chief business officer Nikesh Arora said on an earnings call with analysts. He said smartphones and tablet PCs offer advantages to advertisers since promotions can appear “in context” with a mobile users’ location in mind. “While we have a bunch of building blocks to get the gap to close, the good news is that people are more and more focused on mobile.” Arora said the company aims to make the online experience easier for merchants, advertisers and consumers through simplifying payment processes and with apps that make consumer searches more efficient. The Mountain View, Calif.-based digital search leader reported a 26-per-cent annual rise in advertising volume, but the growth rate slowed from the fourth quarter’s 31 per cent. It said the “cost per click” or average ad price fell 9 per cent year over year, though the cost was flat sequentially.
Consumers are increasingly viewing ads on mobile devices where ad rates are lower compared to the traditional PC.
The lower pricing compared to PCs reflects limits presented by smaller mobile screens as well as increasing competition from Facebook, Twitter and other social media companies for promotional dollars.
Google draws revenue from search, cloud computing, software and online ad- vertising while most of its profits are derived from AdWords in the sponsored links section next to search results.
The company is looking to boost revenue from mobile clicks and from its You Tube video sharing website as it aims to lure spending from traditional media.
It is spending aggressively to expand services, with costs rising faster than sales at 23 per cent to $11.3 billion (U.S.) in the 2014 first quarter.
Google posted revenue of $15.42 billion for the period, a 19-per-cent annual increase, and earnings of $6.27 a share — versus analysts’ estimates of $15.52 billion in revenue and income of $6.42 a share. Shares fell as much as 6.2 per cent in extended trading.
IBM Corp., meanwhile, reported firstquarter revenue Wednesday below targets and profits that are down 15 per cent year over year. Revenue was $22.5 billion, below estimates of $22.91 billion on a decline in its hardware business made worse by softening demand in China.
“In the first quarter, we continued to take actions to transform part of the business and to shift aggressively to our strategic growth areas including cloud, big data analytics, social, mobile and security,” chief executive Ginni Rometty said in a statement.
IBM shares were down 4 per cent after hours.
IBM is pursuing a five-year transition plan and is investing to boost cloud services and middleware software.
The IBM and Google earnings followed reports Tuesday from Web company Yahoo and chipmaker Intel, which both topped analysts’ profit estimates. Intel said it has found pockets of strength in the desktop market.