From the FT's Lex blog
Google is a hard company to understand. Not in the “so advanced and paradigm-smashing you can’t get your head around it” way, but in the “it doesn’t disclose very much about how its business works” way.
Investors can see revenues and profits, and a few operating statistics. Sometimes management deigns to toss ravenous investors a morsel of information about sales at the company’s newer businesses.
On Thursday’s earnings call, it was announced that display advertising sales are headed for $5-billion a year (perhaps 15 per cent of Google’s total), and that there are now 250 million mobile devices running the Android operating system. Last quarter it was revealed that mobile ads were set to generate $2.5-billion in sales a year. How these pieces fit together is, alas, a matter of guesswork. How much of the display advertising comes from mobile? How much mobile revenue derives from Android devices as opposed to iPhones and iPads? How profitable are mobile ads?
The shortage of information give Google’s results a tendency to surprise, and on Thursday the surprise was, unusually, negative.
Google reported top- and bottom-line results that were short of expectations. Causing particular consternation was an unexpected drop in one of the stats Google does break out, the price advertisers pay every time an ad is clicked on, which fell 8 per cent.
Management said that currency effects and a change in mix toward lower-cost, higher volume ad formats drove the drop -- and an acceleration in growth of clicks bears this out. And while total revenue growth did decelerate for the first time in four quarters, it is still running at 25 per cent, pretty good for a company trading under 15 times forward earnings. And operating margins expanded a bit. Shares dropped nearly a 10th in the after-market. Investors working blind are flighty.
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