Google Sales Top Estimates as Retail Makes Up for Ad-Price Drop - Businessweek

Google Inc. (GOOG:US) posted fourth-quarter sales that topped estimates as retailers spent more on advertising during the holidays, making up for lower ad prices.

Revenue, excluding sales passed on to partners, rose 11 percent to $13.6 billion, while profit excluding certain items was $12.01 a share, the company said in a statement yesterday. Analysts on average had projected sales of $13.4 billion and profit of $12.25, according to estimates compiled by Bloomberg.

Chief Executive Officer Larry Page is fine-tuning Google's mobile strategy. It's exiting smartphone manufacturing and selling its Motorola handset unit -- which had an operating loss of $384 million -- to Lenovo Group Ltd. (992) for $2.91 billion. While ads on phones make less money than on desktop computers, Google was able to generate income from retailers targeting online shoppers, who boosted e-commerce sales 15 percent to $61.8 billion during the holiday period, according to EMarketer Inc.

"The holiday shopping season online was strong to very strong," said Scott Kessler, an analyst at S&P Capital IQ Inc. in New York who has a hold rating on the stock. "Google more than likely benefited from that."

Google climbed (GOOG:US) 4.1 percent in extended U.S. trading. The shares advanced 2.6 percent to $1,135.39 at yesterday's close in New York. The stock climbed 58 percent in 2013, compared with a 30 percent gain in the Standard & Poor's 500 Index. The shares rose 3.4 percent to the equivalent of $1,181.68 at 9:31 a.m. in Frankfurt.

Operating expenses, excluding the cost of revenues, rose 14 percent to $5.5 billion. Net income rose 17 percent to $3.38 billion.

Motorola Deal

The Mountain View, California-based search provider had bought the Motorola mobile unit for $12.4 billion in 2012, pushing it into direct competition with hardware partners such as Samsung Electronics Co. (005930) that use Google's Android smartphone software.

Motorola again weighed on results during the fourth quarter. The unit's revenue fell 18 percent to $1.24 billion.

While the search provider may be selling Motorola, it's continuing to invest. Google earlier this month said it was spending $3.2 billion in cash to buy Nest Labs Inc., the digital thermostat maker led by former Apple Inc. executive Tony Fadell. Google, which had $58.7 billion in cash at the end of last quarter, said earlier this week it's buying artificial-intelligence company DeepMind Technologies Ltd.

Google's "other" revenue, which includes the mobile Play store and hardware such as Chromecast, rose 99 percent from the year ago-period to $1.65 billion.

Advertising Prices

Within Google's core business, prices for ads fell 11 percent in the fourth quarter, compared with a decline of 8 percent in the previous period, At the same time, the volume of clicks on ads jumped 31 percent compared with a gain of 26 percent in the earlier period.

"The fact that click pricing is declining so much means they still have work to do on mobile," said Colin Gillis, an analyst at BGC Partners LP in New York who rates the stock a hold.

Google has been upgrading its sales features. Last year, it introduced an advertising service called enhanced campaigns, encouraging marketers to funnel more of their spending to wireless devices. The company also has been pushing retail customers to spend more on product listing ads, which enable them to use more information in promotions, including pictures.

Google is still benefiting from its leadership in online advertising. The company is expected to take 41 percent of the U.S. digital-ad market this year with the closest No. 2, Facebook Inc., grabbing just 8.2 percent, according to EMarketer Inc.

"There's also great momentum in Product Listing Ads," Nikesh Arora, Google's chief business officer, said during a call with analysts. "We continue to improve the experience for shoppers and retailers."

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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