Google sales beat estimates, but profit misses

Search giant announces better-than-expected sales, but it underdelivers on profit. Also, Chief Business Officer Nikesh Arora is departing.

Richard Nieva Former senior reporter
Richard Nieva was a senior reporter for CNET News, focusing on Google and Yahoo. He previously worked for PandoDaily and Fortune Magazine, and his writing has appeared in The New York Times, on CNNMoney.com and on CJR.org.
Richard Nieva
3 min read

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Even as Google delves deeper into extracurricular activities like driverless cars and Wi-Fi balloons, the search giant reminded everyone on Thursday that its core business is doing fine. Even so, it's losing one of its top executives.

Google said sales rose 22 percent to $15.96 billionin the second quarter ended June 30. Profit, minus some costs, was $6.08a share. Analysts were expecting sales of $15.61 billion and profit of $6.25 a share.

The company's so-called moon shots -- audacious projects, like driverless cars, that attempt to advance technology in leaps instead of incrementally -- are what often get headlines. But Google's advertising machine is the cash cow that allows it to work on such investments. The company is still the most dominant digital advertiser in the world. It will own 31.45 percent of the global digital ad market by the end of 2014, according to eMarketer. Its closest competitor, Facebook, trails far behind with 7.79 percent.

Still, other digital brands have fortified their ad offerings. Facebook in April announced an advertising network that will let marketers use Facebook's user data to target ads on properties across the Internet. Yahoo in February announced Gemini, an advertising marketplace for native ads, which look and feel more like editorial content, instead of being blatantly cordoned off like banner ads. To wit, eMarketer said Google's global digital ad share will lose a percentage point this year -- a testament more to its competitors finding footing than Google's slipping.

"Google had a great quarter," Patrick Pichette, Google's CFO, said in a statement. "We are moving forward with great product momentum and are excited to continue providing amazing user experiences, with a view to the long term."

In a surprise announcement, the company said Nikesh Arora, Google's business chief, will depart for SoftBank, after almost a decade working with Google CEO Larry Page. A native of India who graduated from the Indian Institute of Technology at Varanasi in 1989, Arora joined Google in 2004 as vice president of European operations. He served in several senior business operations roles, including as president of the company's global sales operations and business development in 2009 and 2010. Prior to Google, he worked for Deutsch Telekom, Putnam Investments, and Fidelity Investments.

For now, Omid Kordestani, who led sales for many years, is taking over for Arora.

In mobile search advertising, competitors have been nipping more aggressively. Also according to eMarketer, Google's share of mobile search ad revenue dropped to 68.5 percent in 2013, from 82.8 percent the year before. The reason for the shift is that mobile users tend to go to specific apps when they want to find something, instead of heading to a general search engine. So, shoppers might go specifically to the Amazon app, for instance, instead of first Googling an item on their phones.

To fight Amazon -- and to bolster its performance in product listing ads -- Google has stepped up its e-commerce efforts. Earlier this month, Google said it would pour more money into Google Shopping Express, which lets users buy products from local retailers for delivery the same or next day.

Excluding the expense that Google pays partners to drive traffic to its properties, second-quarter revenue was $12.67 billion. Profit rose 5.8 percent to $3.42 billion, up from $3.23 billion. Cost-per-click, the amount of money that Google gets each time you click on its ads, continued its downward trend, falling 6 percent year over year, but remained constant from the first quarter of 2014.

Google's earnings report comes as the dust settles from the company's I/O developers conference, held in late June. There, Google laid out an ambitious plan for the expansion of its Android mobile operating system. The company wants to inject the software into every facet of customers' lives -- making it the platform that powers everything from smartwatches to televisions to car dashboards. The company also in February bought smart device maker Nest, another platform the company can leverage as it surges into the smart home market.

Android running on new screens should also funnel into Google's advertising business. The biometric data gleaned from a smartwatch, for example, is much more intimate than what the company can learn from smartphones and tablets. Inhabiting new platforms means Google can extend its reach, and collect valuable information the company -- and advertisers -- covet.