Google says its acquisition of big-name startups like Nest and DeepMind, along with an uneven shift to mobile advertising, forced earnings below analyst expectations.
Google's shares fell sharply in after-hours trading Wednesday following first-quarter earnings and sales that missed Wall Street's expectations, thanks in part to its continued acquisition binge and the ongoing shift in ad revenue from desktop to mobile.
The stock was down 5.85 percent to $524 per share immediately after the markets closed.
The search giant saw its first-quarter profit rise 2.9 percent year over year to $3.45 billion, or $6.27 a share. Cost-per-click, the amount of money that Google gets each time you click on its ads, continued to be depressed. It was down 9 percent over the same period last year, although was constant from the fourth quarter of 2013.
"I believe in the medium to long-term, mobile pricing has to be better than desktop," Google Chief Business Officer Nikesh Aurora said during the company's earnings call. "People are more and more focused about what they're looking for on mobile devices."
"There are a lot of frictionless ways to pay on mobile. Advertisers are just beginning to understand what it takes to advertise on mobile. We're going to see that gap continue to converge," he added, striking an optimistic tone.
Revenue, meanwhile, rose 19 percent year over year to $15.42 billion. Excluding traffic acquisition costs of $3.23 billion, which are paid out to Google's partners, its actual revenue was $12.19 billion.
Analysts, on average, projected total revenue of $15.54 billion and per-share earnings of $6.41.
Colin Gillis, senior technology analyst at BGC Financial, said "a little [investor] pullback is healthy."
"[Cost-per-click on] mobile's a major problem. People have had a decade to optimize their [desktop] sites," he said. Even though mobile ad revenue is rising, it's not rising as fast as desktop is shrinking.
Google sites generated $10.47 billion, a 21 percent increase over the same period a year ago, for 68 percent of total revenue. Partner sites generated 4 percent more than last year at this time, for a total of $3.4 billion.
Other Google revenues were $1.55 billion in the first quarter of 2014, a full 10 percent of the company's total and 48 percent higher than the $1.05 billion a year ago. This spike was driven by app sales on Google Play, Google Chief Financial Officer Patrick Pichette said during the call.
"Chromecast sales [were] also strong," he said, but didn't reveal more details. Not surprisingly, he added, "We're delighted by the Play business."
Google recently split its stock in a long-planned move so that non-voting Class C shares trade under GOOG and traditional Class A shares trade under GOOGL, which is why the earnings per share are around half of what they were last quarter.
Despite the dour reaction from Wall Street, Google CEO Larry Page released an optimistic statement and said that the earnings were "another great quarter."
"We got lots of product improvements done, especially on mobile. I'm also excited with progress on our emerging businesses," he said.
Google's effective tax rate last quarter was reported at 18 percent.
Pichette noted on the investor's call that the company will begin disclosing how much each property is earning from cost-per-click beginning with the next earnings report.
Google also charted a spike in total employees, thanks to acquisitions last quarter including Internet-connected home products company Nest and artificial intelligence firm DeepMind. Google grew by around 2,300 full-time employees last quarter, from 43,862 to 46,170.
Update at 6:05 p.m. PST with additional information.