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Google Misses Earnings Expectations on Weak Ad Market

Google did not meet analyst's expectations for its third quarter, with earnings per share of $6.35. The Street had been hoping for $6.54.


Google missed expectations for the September quarter despite a slowdown in the decline of online ad rates. The search giant reported adjusted profit of $6.35 per share. The Street was looking for $6.54.

The Mountain View, Calif.-based company had $16.52 billion in sales for $13.17 billion in net income.

It basically looks like Google spent a lot of money this quarter — categories like operating expenses, data center and hardware costs and stock-based compensation were all up. The company now has 55,030 employees, up nearly 3,000 since three months ago.

As for some of the more closely watched metrics, cost-per-click — what advertisers pay when users click on search ads — was down 2 percent, but that’s actually a positive thing — better than last quarter, when cost-per-click rates decreased 6 percent.

But paid clicks — money Google gets when people click on ads that appear on its sites and its partner sites — saw less growth. They were up 17 percent from last year, compared to 25 percent year-over-year in the second quarter. So on first read, that’s the most negative indicator from the quarter.

The markets weren’t stoked about the news, bringing the stock down about 3 percent in after-hours trading.

Update: Google CFO Patrick Pichette’s main explanation to analysts for increased expenses during the quarter was that it was a “banner year” for college recruiting of technical hires, and most recent graduates join in the third quarter. Google has also been spending a bunch of money building out data centers, which is its single-highest capital expense.

As for other downers from the quarter, Pichette noted that the UK, which has long contributed 10 percent of Google’s revenue, is seeing deceleration because UK activity around desktop and tablet searches is maturing more than any other place Google operates.

Pichette also pushed back on interpretations that cost-per-click trends are due to expanding mobile usage, because other factors like geography and product changes played a big part this quarter.

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