Google (GOOG) on Thursday reported a surprise second-quarter earnings decline as the search giant’s ongoing mobile ads push so far hasn’t stemmed falling ad rates.
Shares fell 4% late to near 876.
Google’s adjusted per-share profit fell 6% to $9.56. Wall Street expected $10.78, according to Thomson Reuters.
Sales excluding what Google pays to other websites grew 15.5% to $11.1 billion vs. consensus forecast of $11.4 billion.
“Estimates were overblown on the fact that Google is doing Enhanced Campaigns,” said Global Equities analyst Trip Chowdhry.
Google’s in the process of transferring all its ad campaigns over to those paid “Enhanced” campaigns, which basically are a system that allows advertisers to more easily buy ads across multiple devices, including mobile.
“The shift from laptop to mobile, from one screen to multiple screens, creates great opportunity for Google,” CEO Larry Page said on a conference call with analysts late Thursday.
Not Clicking Yet
Replying to an analyst question about why the new campaigns didn’t help Q2 results, Page said: “It’s the early stages of a very, very major change.”
If Google has to “take some hits” in the short term to “get it right in the long term,” then that’s OK, added CFO Patrick Pichette.
Google since January has shifted some 6 million advertisers to the new system, which is a “big, long-term bet,” said Chief Business Officer Nikesh Arora.
That shift to a new ad structure has a lot of potential, but it’s still hurting per-click ad rates, says analyst Chowdhry.
Per-click rates, or CPC, fell 6%, the seventh straight year- over-year decline and worse than expected. That should start to turn around soon, said Baird Equity Research analyst Colin Sebastian.
“We think it’s not in the too-distant future where that number can turn positive,” Sebastian said, “but I don’t think that’s necessary this quarter.”
Still, analysts had hoped that the slide would slow. CPC rates had fallen 4% in Q1 and 6% in Q4.
Paid clicks on Google ads climbed 23% in Q2.
Google’s stock gained 19% in the three months since its Q1 report, and is up 29% so far this year, though it dipped less than 1% in regular trading Thursday.
“I think the stock got a little bit ahead of itself, but I still feel the mid- to long-term fundamentals of Google are very strong,” Chowdhry said.
Wall Street analysts are expecting the stock to continue upward. The consensus price target inched up to 1,000 Thursday, according to Thomson Reuters.