Google (GOOG) Slides After Missing Top and Bottom Line Estimates

Shares of search giant Google (GOOG) plunged last week, after the Mountain View, Calif.-based company reported second quarter earnings that came short of consensus estimates. For its second quarter, Google earned an adjusted $9.56 per share, down from the $10.12 it earned in the prior year quarter and also missing the Thomson Reuters consensus estimate of $10.78. Revenue including Motorola Mobility rose from $11.81 billion to $14.11 billion, but also missed the consensus estimate of $14.4 billion.

Revenue at its core business excluding Motorola rose 20% year-on-year to $13.11 billion. Daily Chart
In addition to Google's disappointing to and bottom line miss, investors were disappointed by a 6% year-on-year decline in the average price of online ads, in comparison to a decline of 4% in the prior year quarter. This decline highlights a decline in demand for traditional desktop ads and higher demand for mobile ads - a difficult shift that its industry peers Yahoo (YHOO) and Facebook (FB) have had trouble fully adjusting to. Mobile ads are generally cheaper than desktop ones. Google attempted to address this shift earlier this year by blurring the distinction between PC and mobile ads with "Enhanced Campaigns," in an effort to combine both platforms as one. At the time, analysts believed that this strategy would balance out the difference between the two. Although prices fell, the overall volume of ads surged 23%, up from the previous quarter's 20% gain. However, analysts warn that Enhanced Campaigns won't be the silver bullet that Google investors were looking for in mobile advertising. "We've got to assume that maybe Enhanced Campaigns is not going to provide the pricing boost that a lot of people were expecting," stated JMP Securities analyst Ronald Josey. BGC Partners analyst Colin Gillis noted that many "consumers don't click on mobile ads as often as they do on desktop PCs," which makes offering the two as the same product to be counterproductive and unattractive. Gillis claims that this will cause advertisers "to pay less for clicks" for both PC and mobile ads. Meanwhile, Motorola posted a big non-adjusted loss of $218 million, down from the loss of $49 million it reported in the prior year quarter. That big loss hurt Google's once pristine profit margins, causing operating margin to decline from 33% to 28%, below analyst estimates. To turn around the sinking business, Google is gearing up to introduce the Moto X signature smartphone - which has the distinction of being the first handset designed and manufactured in the United States. With the Moto X, Google is allowing users to customize the color and trim of the phone online, adding an engraving and a personalized wallpaper for a more personal smartphone experience. However, the Moto X is entering an increasingly crowded smartphone market primarily dominated by Samsung and Apple (AAPL), which means that the Moto X could end up becoming more of a liability than an asset. Shares of Google have cooled off considerably after its second quarter earnings announcement, but the stock is still up more than 55% over the past twelve months and near all-time highs. Other News About GOOG Google Earnings Clipped in Mobile Head Winds Google misses on both its top and bottom line growth. Google Results Show That it is Struggling to Make Money on Mobile Devices How can Google address the challenge of mobile growth? Other Stocks in the News Has This Soda Maker Gone Flat? Can Coca-Cola fizz to the brim again? Can a Leaner and Meaner Microsoft Learn From Its Past Mistakes? After its big reorganization, is Microsoft ready to confront its core problems? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Jul 22, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

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