Google reported earnings that were slightly higher than expected in the fourth quarter, surprising many analysts. Google earned about $2.9 billion, or $8.62 per share, during the fourth quarter. That compared to net income of $2.7 billion, or $8.22 per share, in the same quarter last year. Excluding the costs of employee stock compensation and certain other accounting items, Google would have earned $10.65 per share. Google exceeded the average earnings estimate of $10.54 among analysts.
The Internet search leader’s expansion into device manufacturing caused a financial drag on earnings. Fortunately, Google’s advertising services have steadily churned out higher profits since the company went public in 2004. Google’s fourth-quarter ad revenue totaled $12.1 billion. This was a 19% increase from the same quarter the previous year.
The company saw a decline in digital ad prices as more people use smartphones where ads are not as lucrative. The average price for the ads shown next to Google search results has fallen from the previous year in five consecutive quarters. This includes the final three months of last year.
Advertising revenue has been shifting away from personal computers and into mobile devices as advertisers try to connect with an expanding audience that relies on smartphones and tablet computers. More consumers are using smartphones to reach Google’s search engine, email, and other online services. Nearly 25% of the clicks on Google’s search ads are now coming from mobile devices.
Advertisers have been resisting paying as much money to market their products and services on mobile devices, largely due to the smaller screens leaving less room for commercial links and other advertising messages. However, Google’s average ad prices dropped by just 6% in the most recent quarter from the same period in 2011. This was viewed as a positive sign that Google may be able to solve the pricing issues posed by the proliferation of mobile devices. Google CEO Larry Page predicted ad prices will gradually rise as the devices become even more sophisticated.
To gain a foothold in the mobile market, Google bakes its services into its Android software, an operating system for smartphones and tablets that now powers more than 500 million mobile devices worldwide. Google is also seeking new ways to reach potential customers at the times they are most likely to buy something. Mr. Page stated in a conference call that, “In today’s multi-screen world, the opportunities are endless.”