Google Shares Drop After Earnings Disappoint

For Google, mobile has been a mixed blessing. Smartphones and tablets are bringing in new users — and the advertisers that follow them — but it makes less money on mobile ads than on desktop ads.

The company reported that the price advertisers paid per click on an ad — referred to as cost per click — decreased 15 percent from the same period last year. This was the fourth consecutive quarter that number has declined, even as the number of paid clicks on ads climbed 33 percent, largely because people see Google ads on their phones on lunch break or in bed, not just when they are in front of a computer.

The challenges of making money in a mobile world were not the only reason that Google’s net revenue and earnings per share fell significantly below analysts’ expectations. Motorola Mobility, the ailing cellphone maker it recently acquired, is bleeding money.

Still, the report showed that Google was grappling with the mobile revenue riddle. And Google is not alone. The problem is also stumping technology companies like Facebook, Apple and Microsoft. Just as the Web upended traditional business models for print publications more than a decade ago, now mobile is disrupting Web businesses.

“All of these mobile devices are generating clicks that are just less valuable to advertisers,” said Colin Gillis, an analyst at BGC Partners, who said mobile ad clicks cost half of what clicks on desktop Web ads cost. “The supply part is doing so well, but the supply’s going to continue and continue to grow and they could devalue their inventory.”

As usual, Google was scheduled to release its earnings after trading closed, but because of a financial publisher’s error, the company mistakenly filed the report with the Securities and Exchange Commission several hours earlier than planned. The stock price immediately plummeted more than 9 percent, or $68, before Nasdaq halted trading in its shares in the early afternoon. Shares ended the day down 8 percent and rose 1 percent in after-hours trading.

Google executives took pains Thursday in the conference call with analysts to reassure investors that it was prepared for the challenges from mobile, and that it was already shifting its business models to adjust.

“Monetization on mobile queries right now is a significant fraction of desktop,” Larry Page, Google’s chief executive, said.

He said Google was exploring new ways to make more money as people increasingly used phones and tablets in addition to and instead of desktop computers, and said it was “uniquely positioned to get through that transition and to profit from it.”

“I am not worried about this in terms of our business at all,” Mr. Page said. “I think it’s an opportunity for us.”

The company said it was on track to generate $8 billion in the coming year from mobile, including ads and sales of apps. It did not break down how much of that would come from advertising, but said it was a large majority.

Also, the decline in click prices was not just because of mobile ads, said Patrick Pichette, Google’s chief financial officer, but also because of other factors including currency headwinds, the balance between developed and emerging markets, the number of ads shown on Google sites versus other sites in its network and changes in types of ads.

But the explosion of mobile users and ads has presented difficulties. Google has 55 percent market share in mobile ad revenue, and 95 percent for mobile search ads, according to eMarketer, the digital advertising research firm. Yet the ads cost less in large part because advertisers are not yet convinced that they are as effective as desktop ads.

This article has been revised to reflect the following correction:

Correction: October 18, 2012

Because of an editing error, an earlier version of this article misstated the loss for the day on Google’s stock. It was 8 percent, not 8.3 percent.