Shares slide as Google misses revenue, earnings forecasts

Increased mobile use means less clicked ad revenue for Google. Gordy Stillman/MEDILL
Increased mobile use means less clicked-ad revenue for Google.
Gordy Stillman/MEDILL

Google Inc. shares slipped more than 3 percent in after-hours trading after the company reported first-quarter earnings and revenue that missed expectations. Shares fell by as much as 6 percent immediately following the release.

Net income rose 3.2 percent to $3.45 billion, or $5.04 per diluted share, for the period ended March 31, compared with $3.34 billion, or $4.97 per diluted share, in the year ago period.

Revenue rose 19 percent to $15.42 billion, from $12.95 billion in the year-ago period, but missed the analysts’ consensus expectation of $15.52 billion, according to Yahoo! Finance.

Earnings excluding stock compensation and other items came in at $6.27, which was 14 cents shy of the expected $6.44 per share, according to Bloomberg LP.

Paid clicks in the first quarter were up 26 percent from the year-ago period, but cost-per-click, the revenue gained from advertisers when people click on their ads, was down 9 percent.

William Blair & Co. analyst Ralph Schackart said Google’s large earnings miss had not changed his outlook on the giant tech company.

“We continue to believe Google shares should outperform the market as the company is positioned to capture a disproportionate amount of transitioning mobile advertising dollars,” Schackart wrote in a note to clients.

The company blamed the earnings shortfall on one-time costs, such as legal fees and research and development costs related to Google’s acquisition of Nest Labs, announced in January.

Google’s results also included a net loss from discontinued operations from the sale of Motorola Mobility to Lenovo Group Ltd, also announced in the quarter.

Purchases of property and equipment, a sign of a company’s long-term growth potential, nearly doubled to $2.35 billion from the year-ago quarter, largely for new data centers.

In the conference call with analysts, Chief Financial Officer Patrick Pichette acknowledged the impact of capacity expansion on earnings but said the company is “very confident with our cost structure.” He added that for Google, the value of having more than enough data center capacity is preferable to the risk of experiencing a spike in demand and lacking the capacity to handle it.

Google also said it will begin to include more detailed data on paid click rates beginning with its second-quarter earnings report.

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