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Google's earnings push shares near record high

Google reports third-quarter profit and revenue that top analysts' estimates despite investors' concerns that its search advertising business will take a tumble.

October 17, 2013|By Jessica Guynn
  • Google reported a profit of $3 billion, or $8.75 a share, during the three months that ended in September.
Google reported a profit of $3 billion, or $8.75 a share, during the three… (Marcio Jose Sanchez, AP )

SAN FRANCISCO — Google Inc.'s quarterly results topped Wall Street expectations as the technology giant continued to grow its mobile advertising business, propelling its shares into record territory.

The company keeps minting money despite investors' worries that its search advertising business will take a tumble as consumers spend more time on mobile devices, on which ads are cheaper and less effective than on desktop computers.

As with competitors Facebook Inc. and Yahoo Inc., Google has come under pressure from investors as more consumers access the Internet from smartphones and tablets.

Google responded to those concerns Thursday by posting third-quarter financial results that surpassed analysts' estimates. It reported a profit of $3 billion, or $8.75 a share, during the three months that ended in September. Excluding items such as expenses for employee stock compensation, Google earned $10.74 a share — topping analysts' estimates of $10.36 a share.

Revenue for the third quarter jumped 12% from a year earlier to $14.9 billion. After subtracting commissions paid to Google's advertising partners, its revenue was $11.9 billion, some $227 million above analyst estimates.

The results sent Google's shares up nearly 8% to $959.00 in after-hours trading after closing at $888.79, down $9.24. If the stock maintains that momentum in trading Friday, the shares will reach an all-time high.

Fueling investor enthusiasm: The company's search advertising business is still going strong after 15 years even as the price advertisers pay when people click on ads continues to decline.

But BGC Partners analyst Colin Gillis said the market reaction to Google's quarter was "way over the top."

The price that advertisers pay each time someone clicks on an ad fell for the eighth straight quarter. The problem is that mobile ads cost a fraction of desktop ads. And consumers still have a tougher time making purchases on smaller screens.

"There is a lot of giddy up and go in after hours for Google, but not all was rosy in this quarter," Gillis said. "Click pricing is going in the wrong direction.... Advertisers are paying less for clicks and they are paying less because these ads convert less effectively. Google still very much has a mobile problem."

Chief Executive Larry Page said Google was continuing to make improvements and was nearing its goal of making the online experience "beautiful, simple and intuitive" regardless of what device a consumer is using, be it a phone, watch or Google's Internet-connected eyewear Glass, he said.

"We are tremendously well positioned in mobile," Page said during a conference call with analysts Thursday.

Ad volume surged in the quarter. Google's number of paid clicks rose 26% from a year earlier.

In July, Google began requiring advertisers to buy mobile ads when they buy desktop ads in a program called enhanced campaigns.

Google's main business, selling ads on and other sites, rose 22% year over year. Google had recorded four straight quarters of less than 20% growth.

"We view Google's third-quarter results as evidence of the ability of enhanced campaigns to re-accelerate ad revenue growth," Piper Jaffray analyst Gene Munster said in a research report.

The gains in its advertising business helped make up for losses that continue to mount in Google's Motorola mobile phone business. Operating loss totaled $248 million during the third quarter, compared with a loss of $192 million in the year-earlier quarter.

Page, who spoke in a strained voice, announced he would no longer be regularly joining earnings conference calls to brief analysts on quarterly results. He did not say why. Page revealed this year that his vocal cords are partially paralyzed as the result of a rare medical condition.

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