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Google reports $16.52 billion in revenue, profits stutter as ads move to mobile

Google reports $16.52 billion in revenue, profits stutter as ads move to mobile

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The company continues to post double-digit revenue growth, but shows weaker profit as ad move to mobile

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Google posted mixed results for its third quarter this year. Revenue was $16.52 billion, not excluding traffic acquisition costs, a 20 percent rise over the same period in 2013. But its profit of $3.72 billion was down slightly from the same period in 2013, when it reported $3.76 billion in profit. Analysts were expecting the company to generate earnings per share of $6.53, but Google reported an EPS of $6.35. The stock was down a little, about 3 percent, based largely on that miss.

The key to understanding Google's current finances is the transition happening in digital advertising from desktop to mobile. Every quarter Google has reported a rise in the number of paid clicks — people who clicked on ads — but a decline in cost-per-click — the amount they make every time you click on an ad. These metrics have been moving in opposing directions and so far have largely canceled each other out. This quarter they may have contributed to an earnings report that missed expectations, but Google continues to sport a healthy profit and double-digit revenue growth year-over-year.

Investors have been hoping that YouTube's advertising business and revenue from apps sold through the Play Store would provide new sources of growth outside Google's traditional search and display ads business. Google doesn't break out the revenue generated by YouTube, but it did report 50 percent year over year growth in its "Other" revenue category, which counts the Play Store, hardware sales, and Google's enterprise services.

Google hired nearly 3,000 people over the last three months, more than average, and also invested heavily in building out new data centers. These two costs may have contributed to the lack of profit growth, but are expected to continue.

On the company's earnings call, Google's Chief Business Officer, Omid Kordestani, says that the company has been very happy with the momentum they have seen in terms of consumer adoption of its delivery service, Google Express. The service recently expanded to a number of new cities, and Kordestani says they are now charging some commissions and service fees as they experiment with monetizing the business.

Kordestani, asked about payments, says the main goal is to get mass adoption from merchants, so that consumers can begin to use the technology already built into their phones. All well and good, although it seems Apple has had better luck so far convincing merchants to buy into their payments platform in a big way.

Patrick Pichette, the company's chief financial officer, says that its too early to tell what the fallout will be from the changes to Ireland's tax laws, but that Google is committed to the presence its developed there.