In Depth

Google Impresses But Misses Mark in Q1

“People expect to get exactly what they want, when they want it. As a company built on intent and immediacy, that’s good news for Google. Our job has always been to connect people with the exact thing they are looking for in the exact moment they’re looking.”
-Omid Kordestani, Chief Business Officer, Google, Google Q1 2015 Earnings Call

Good news for Google, powered by mobile was a recurring theme in Google’s Q1 earnings call yesterday – following the announcement that the world’s largest search firm had missed on both earnings and revenue predictions by analysts. Google saw its revenue kick up 12 percent to $17.26 billion, from $15.42 billion at the same time in 2014 – though it did narrowly miss the $17.5 billion analysts were expecting.

The slight whiff on revenue did not seem to faze investors- as Google’s stock was up ~3 percent in after-hours trading. Many, it seems were fearing a worse result, according to Reuters.

“The concern was that the first quarter results could have been much worse,” said BGC Financial analyst Colin Gillis. “There’s a certain degree of relief rally happening.”

Google’s CFO Patrick Pichette perhaps echoed some of those investors’ concerns when he affirmed Google’s strength at the top of his remarks.

“This quarter Google turned in a strong quarter, despite strong currency headwinds,” Pichette noted.

”Excluding the net impact of foreign currency headwinds, revenue grew a healthy 17 percent year on year,” Pichette said in a statement.

Pichette also directly addressed what have been growing concerns about Google’s ability to monetize the growing trend of Web consumption via mobile phone instead of desktop computer.

“Many commentators are incorrectly assuming that the growth trends in our sites, clicks and CPC are due to difficulty monetizing search on mobile. But that is in fact not the case.”

Pichette went on to explain that the essential difference that is actually emerging is between viewers who click ads on Google’s home site and the growing number of consumers watching ads on sites like YouTube – where a user’s choice not to skip an ad is counted as a click – though a less valuable one than on Google.com.

“Over the past year we’ve seen YouTube viewership expand dramatically both in established markets but also due to rapid expansion in emerging markets,” Pichette said. “And quality improvements in TrueView ads, meaning more users are in fact choosing not to skip them. This means there is much higher volume of TrueView ads being seen which has been a significant driver in year-over-year growth in numbers that you’ve seen in site clicks. TrueView ads generally monetize at lower rates than ad clicks on Google.com.”

Pichette also notes that removing the TrueView ads changes the view of the mobile advertising landscape significantly.

“Excluding the impact of YouTube TrueView ads, growth in site clicks would be lower but still positive and our CPCs would be healthy and growing year over year,” Pichette said. “So really, we have two positive stories to tell here today. First, as I mentioned earlier, we’re experiencing real strength in mobile search, and the CPCs in core Search business is continuing to grow year-over-year, so it’s doing very well. … And we’re really pleased with how the YouTube business is progressing.”

Those good stories kept coming when Google’s Chief Business Officer Omid Kordestani began his half of the presentation – where he largely focused on the potential for growth mobile presents.

“As we all know, consumers reach for their phones a lot – and some of those moments matter more than others – like when people are looking for answers or making a decision about what to buy or do,” he said.

Kordestani then noted that as the world’s leading specialists to connecting people to information quickly, Google was well placed to better enable the now 8 out of 10 smartphone users whose phone is the primary research tool for a wide range of decisions. Kordestani then noted the expanding Android platform, the company’s efforts to bring higher speed access through the mobile phone in developing markets.

He also talked about Google’s work to help marketers best leverage the increasingly mobile world – specifically in helping the “90 percent of commerce that happens offline.”

“[This] is a massive opportunity that our partners are really excited about. People are searching on Google for ‘near me,’ ‘closest’ and ‘nearby’ twice as much as they did last year. Our local inventory ads are a great way for businesses to drive purchases in stores right when people are looking for local options,” Kordestani noted.

He also focused on how Google is moving its search capability away from Web browsers and into app stores. This included better search, embedded app downloads in the Chrome mobile browser, and early testing of sponsored search results in the Google Play store.

“Our ads are also driving people to download apps precisely when they are looking for them,” he said.

All in – far from sounding spooked by the toll mobile was going to take on the Google business – Google seemed ready to talk up its mobile future and how it planned to capture a stronger share of the market (particularly as it finds itself losing increasing amounts of market share to Facebook on mobile).

“I’m very excited about the mobile future and marketers are too. Our pivot to mobile has great momentum and is delivering strong benefits to users and advertisers,” Kordestani said.

While Google had much to say about mobile, marketing, and its bright future of expanding ad revenues and enabling commerce anywhere it wants to be – the firm seemed somewhat less interested in talking about its future in payments. In a call that lasted a little under an hour and a half – Google spent almost exactly 60 seconds talking about payments, at the request of an investor. Kordestani was less than specific in his remarks.

“On Apple Pay, again, I think it is just really great that the industry is really opening up here and that the merchants, the banks, the consumers are starting to experience this,” he said. “Our focus is to bring the set of new APIs for payments called Android Pay and our goal has always been to remove much of the friction that our users encounter today on everyday shopping experiences. So we’re excited about what the industry is doing here, what the user adoption is going to be and we’re working together with our partners to put all the pieces together and finally create the momentum we are looking forward to benefitting from.”

Apart from the hard data on earnings, the call was also a chance for many to say goodbye to Pichette, who is soon ending his seven-year tenure as Google’s CFO. Kordestani noted that Pichette came to the decision to leave Google after summiting Kilimanjaro with his wife last year.

 

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