Google (GOOG) Reports Lower than Expected Profit on Higher Sales

Shares of Google Inc. (GOOG) were trading down -4.11 or -0.78 percent to $520.40 per share in premarket trading on Friday, after the company reported a small drop in third quarter net income with an increase in sales on Thursday after the closing bell. Google stock closed at $524.51, down -5.52 or -1.04 percent in Thursday's regular trading session.

Mountain View, California based Google Inc. is an international Internet corporation best known for its search engine.
The company has been aggressively expanding into other information technology fields through acquisitions. Its latest acquisition in January was Nest, a company that makes home appliances that connect to the Internet. Google had previously bought DeepMind and military robotics company Boston Dynamics late last year.

Google reported net income of $2.81 billion, or $4.36 per diluted share, down from $2.97 billion or $4.66 a diluted share, in the same period one year ago. On an adjusted basis, earnings came to $6.35 per share, compared to $5.63 in 2013's third quarter, and missing the Wall Street consensus of $6.54 a share. Nevertheless, revenues soared +20 percent to $16.5 billion, with sales excluding traffic acquisition costs totaling $13.17 billion, just under the analyst consensus of $13.2 billion.

The company cited increased use of cell phones to access the Internet, slowing ad clicks and a large initial outlay for top talent as the main reasons for the decline in third quarter profits. The number of clicks on ads on Google websites increased +17 percent on a yearly comparison, down from a +28 percent increase in the second quarter. Paid clicks from ads were also lower than expected.

In addition, paid clicks average price fell -2.0 percent adding to the -9.0 percent decline in the second quarter. The two year downward trend in paid clicks was in part due to the use of smartphones for advertising, which cost advertisers less to run campaigns on.

Patrick Pichette, Google's Senior Vice President and Chief Financial Officer said in a conference call with analysts that, "We continue to be happy with our strong operating cash flow at $6 billion. CAPEX for the quarter was $2.4 billion, and this quarter the majority of the CAPEX was related to our data center construction, production equipment, and real estate purchases, in that order. It's important to remember that our infrastructure supports all of our products, whether they are core products like search or ads, Maps or YouTube, but in addition to fueling our growth products, like Photos and Hangouts, Google for Work, and the cloud platform.

Google stock is trading at the lower end of its tight 100 point yearly range. While the company had slightly lower than expected profits in the third quarter, Google continues to be one of the most innovative companies in the high tech sector and has earned more than $19 per share this year. The stock is well bid despite trading lower in this morning's premarket, which could make the stock reverse direction and trade higher.

Other News About Google
Google Just Confirmed It's Coming After TV's Money
Company hopes to price YouTube ads at a similar rate as TV ads.
John Sculley: Next tech slam-dunk more likely from Google than Apple
Former Apple CEO sees Google bringing the next big tech innovation.

Other Stocks in the News
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Company unveiled its new iPads on Thursday in Cupertino, CA.
GE profit beats estimates, shares up 4.1%
Company reported orders surged +22 percent to $31.4 billion in the third quarter.

Published on Oct 17, 2014
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2020. Content published with author's permission.

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