Google Posts Revs Of $17.3 Billion In Q1, Misses On Earnings And Revenue

This afternoon Google announced quarterly earnings of just under $17.3 billion, which was up 12 percent over Q1 2014. However both revenue and earnings missed financial analyst consensus expectations.

Google is blaming the performance in part on currency issues and a strong dollar. Without currency issues revenue growth would have been 17 percent year over year.

Total advertising revenues were roughly $15.51 billion, representing 11 percent year over year growth. However ad revenues were off 5 percent vs. Q4 2014.

Paid clicks were mixed; they were up on Google sites but down on its network. CPCs were down 13 percent on Google sites and 7 percent in the aggregate. There was no discussion of mobile revenues in the release, which are still widely thought to be the culprit behind the declining CPCs.

The CPC slide is part of a multi-quarter trend that Google has yet to stop (but see contrary explanation below). Many investors will see these results as continued confirmation of slowing top-line growth. However Google CFO Patrick Pichette is quoted in the release saying, “We continue to see great momentum in our mobile advertising business and opportunities with brand advertisers.”

The stock was immediately down after-hours but has rebounded. I’ll be listening in on the earnings call and bring you any interesting discussion or insights.

Notes and comments from the earnings call: 

On the call were CFO Patrick Pichette and Chief Business Officer Omid Kordestani.

Pichette is arguing that Google doesn’t really have a problem with mobile search and display monetization. He’s talking about pricing issues with ad clicks (YouTube TrueView ad clicks). Here’s the transcript:

Over the past year, we have seen YouTube viewership climb dramatically, both in established markets but also due to expansion in emerging markets.  And quality improvements to TrueView ads mean that more users are choosing not to skip them, increasing overall ad views.This means that there is a much higher volume of TrueView ads being seen, which has been a significant driver of the Y/Y growth numbers you’ve seen in Sites clicks.  TrueView ads currently monetize at a lower rate than ad clicks on Google.com.  As you know, video ads generally reach people earlier in the purchase funnel, and so across the industry, they tend to have a different pricing profile than that of search ads.

Excluding the impact of YouTube TrueView ads, growth in Sites clicks would be lower, but still positive and CPCs would be healthy and growing Y/Y.

Really we have two positive stories here. First, as I mentioned earlier, we are experiencing strength in mobile search and the CPCs in our core search business are continuing to grow Y/Y.

Second, viewership of YouTube videos and TrueView ads are growing significantly and YouTube’s contribution to our advertising revenues continues to grow at a strong rate Y/Y.  We’re really pleased with how the YouTube business is progressing.

Kordestani is up now highlighting growth areas and rattles off a list of partnerships and product updates.

About the shift to mobile: “Roughly 8 in 10 smartphone users research products before purchasing in store.” He adds, “We have 30 billion in-app links indexed . . . Chrome for mobile is used by 400 million users” (and discusses recent notifications addition).

More lists of Google capabilities and accomplishments. For example, from the transcript, regarding Google Preferred:

YouTube drives great results and we can measure the impact. We’ve run over 6,000 Brand Lift studies to date, across some of the largest brand advertisers. And in studies we’ve run for Google Preferred campaigns, we found that 94% of the campaigns we studied drove a significant lift — an average of 80% — in ad recall. That’s why we’re bringing it back this year and expanding it to more than 10 new markets.

Google Preferred is also attracting some of the biggest TV advertisers to YouTube. More than 30 major brands that had never advertised on YouTube before signed on with Google Preferred, and saw such great results that they’ve continued to advertise with YouTube afterwards. YouTube is home to great content and engaged audiences, and we’re seeing the natural shift of TV budgets.

Select analyst questions: 

Regarding CPC pressure . . . Pichette seems to reaffirm that YouTube TrueView ads are mostly responsible but it’s not entirely clear from the comments.

Regarding mobile search . . . Kordestani: non-mobile friendly sites won’t disappear but they won’t rank. Too early to speculate re monetization impact of mobile friendly update.

Pichette: “CPCs would be growing if you take out TrueView ads on YouTube.”

Regarding payments . . . Kordestani praises Apple Pay for “opening up markets.” “We’re excited about what the user adoption is going to be” (for Google Wallet and payments generally).

Regarding Google cash and whether it will be returned to investors (like Apple). Pichette says that company discusses this issue regularly but it’s not going to happen now.

Regarding mobile search monetization . . . Kordestani says improvements in measurement and user experience (across devices, local inventory, offline sales) will boost mobile monetization.

Questions about Google Maps and Project Fi . . . Kordestani on Maps: “more than 1 billion monthly active users of Google Maps services.” Pichette on Fi: we wanted to try this new vision of fast and innovative wireless service. “It will be interesting to see how the market responds to it.”

Question about rumors re Google introducing a (Facebook) “custom audiences“-like product . . . Kordestani: we’re not announcing any new products but you’ll continue to see us innovate in targeting.

Question about consumer behaviors being different on mobile. Kordestani: the shift (to mobile) is very very dramatic and we’re studying it every day. You’re right; behaviors are different on mobile vs. the PC.

Amazingly there were no questions at all about the EU antitrust Statement of Objections or its potential implications or impact on the business.