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.
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.
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