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Google Falls Short on Earnings Again, and Wall Street Shrugs It Off (Again)

How do they do it?

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Google’s first-quarter earnings call was a big one for YouTube. Relatively speaking. The two execs on the call, outgoing CFO Patrick Pichette and business chief Omid Kordestani, opened up about the video service more than in prior calls.

But in the end, the YouTube talk wasn’t really about YouTube — it was about the health of Google’s core search business. Pichette and Kordestani wanted to assure Wall Street that Google’s cost-per-click numbers, one of the few available metrics analysts have to judge Google, were better than they looked. The problem, they argued, was that YouTube’s ad business was booming, but YouTube’s ads generated lower prices than search ads do.

That said, they had other positive but vague talk about YouTube. Look for more of that next week at the video site’s “Brandcast” event for advertisers.

And the pair of execs did offer previously unspoken insights into the strategy behind some of Google’s more ambitious projects. Pichette characterized Project Fi, its wireless service launched this week, as a natural extension of its consumer products. “[We’re] always looking to make the Web faster, cheaper, more available, and we wanted this new vision, this new idea of a fast and easy wireless service,” he said. He contrasted these with two of Google’s Access projects, the Loon Internet initiative and Google Fiber. These are “strategic assets” for Google, beyond too much scrutiny for now.

This term came up earlier, too. The first analyst question out of the gate was about whether Google’s capital expenditure — $2.93 billion this quarter — would be the new normal. Kordestani fielded that one, focusing on the importance of the data centers Google is funding. In short, his answer was, yes, it is.


Once again, Google proved it can fail to deliver on Wall Street expectations but somehow appease investors.

For the first quarter, the search giant reported a 14 percent gain in net revenue to $13.91 billion and profit of $6.57 per share. The Street was looking for net revenue of around $14.12 billion and profit of $6.61. It looks like currency swings hurt Google’s revenue by about $795 million for the quarter. A strong dollar has eaten into sales figures for many U.S. companies.

But investors saw something in the numbers they liked. The stock rose 2.65 percent in after-hours trading.

For years, Google’s cost-per-click rate, what it charges for ads, has fallen or flatlined. That did not change. It fell 3 percent quarterly and 13 percent year over year, missing expectations on both. Google has yet to prove it can replicate its success on desktop in mobile, whether it’s with search, where it has articulated some strategy, or video and display, where it largely has not. And yet, Google is optimistic. “We continue to see great momentum in our mobile advertising business and opportunities with brand advertisers,” CFO Patrick Pichette said in a statement with the release.

Google’s spending slowed slightly. In the fourth quarter of 2014, Google dropped $3.55 billion in capital expenditures for real estate, equipment and data center upkeep. This last one, capital spending reached $2.93 billion. However, analysts had projected they would slow that figure down to $2.42 billion.

The earnings call commences at 4:30 pm ET. It will be the last for Pichette, who announced his departure in March. He’ll probably field questions on the company’s maiden wireless services and the pending charges in Europe. Google Fiber, its broadband service, which tacked on an additional 18 cities during the quarter, could also come up as reports of the collapse of the Comcast* and Time Warner Cable merger landed this afternoon.

We’ll liveblog the call on the off chance that Google says more than usual — a low bar!

* Comcast owns NBCUniversal, which is a minority investor in Revere Digital, Re/code’s parent company.

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