Google's revenues swell yet again, yet big earnings elude it

Just a few billion in profit for Q2, ho hum

Google continued to mint money in the second quarter of its fiscal 2014, with revenues booming compared to the year-ago period, yet its earnings still managed to disappoint eager Wall Street analysts who were expecting even greater returns.

This quarter, the online ad-slinger posted revenues of $16.0bn, which soundly beat the financial prognosticators' expectations. But it "only" reported earnings of $6.08 per diluted share, when the analysts were hoping to see something more like $6.24 per share. Some companies can never win, it seems.

About those revenues, though: They were up 22 per cent over the same period a year ago, outdoing even the previous sequential quarter's 19 per cent gain.

Once again, however, the growth of the Chocolate Factory's revenues dwarfed the growth of its net income, which only increased 5.9 per cent year-on-year, to $3.42bn.

Some of that can be attributed to the mercurial nature of the advertising business, which in the second quarter once again accounted for 90 per cent of Google's revenues.

Google is selling more ads across the board; that much is clear. Paid clicks from Google's ad network were up nine per cent over the year-ago quarter, while paid clicks from Google's own sites – including search, Maps, Finance, YouTube, and so on – were up 33 per cent.

And yet, as in previous quarters, cost-per-click – the money Google brings in from advertisers – was down. Cost-per-click for Google's own sites decreased six per cent as compared to Q2 of 2013, while cost-per-click for network sites was down 13 per cent.

On the brighter side, the Chocolate Factory has managed to keep its traffic acquisition costs (TAC) – the portion of its revenues that it shares with its advertising partners – under control. Similar to the first quarter, total TAC was up 9.3 per cent, year-on-year, but TAC as a percentage of ad revenues was down to 23 per cent, as compared to 25 per cent a year ago.

Google's non-advertising revenues – which include things like sales of Nexus devices and revenue from Google apps and cloud services – are also growing healthily, up 53 per cent from the year-ago period (although they were up 99 per cent in the previous sequential quarter).

And if Google's profit growth has been modest, let's not forget that it continues to make massive investments in its business. The online ad giant's capital expenditures for the second quarter totaled a staggering $2.65bn, which it spent on data center construction, real estate purchases, and equipment (in that order).

On top of that, it spent another $2.23bn on research and development, which represented a year-on-year increase of 26.7 per cent.

All in all, despite some fluctuation, it was another stable quarter for the house that Larry and Sergey built. And although some investors hoped for brighter earnings news, whatever value Google's stock shed before the closing bell bounced back in after-hours trading, leaving the company's share price essentially flat on the news. ®

Bootnote

Google CEO Larry Page has been a no-show for the company's last few conference calls with financial analysts, preferring to leave the job of spelling out the gory details to CFO Patrick Pichette and chief business officer Nikesh Arora. But Tuesday's call was a bittersweet moment for Arora, because it will be his last with Google.

Earlier in the day, Arora announced he is stepping down to take a position as CEO of Japanese tech conglomerate SoftBank's newly-formed SoftBank Internet and Media division. Google veteran Omid Kordestani will take over Arora's duties on an interim basis until a permanent replacement can be found.

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