Analysts estimate that the Internet giant Google (NASDAQ:GOOG), accounts for more than 66% of the search engine market share. But the growing importance of mobile devices is hurting Google’s search revenues. Not only do mobiles offer a smaller screen for displaying ads, but the click-through rate on mobile devices is also less. Ads generated on smartphones cost about 40% less than those on computers and about 25% less than on those generated on tablets. Delivering the same monetization rates on mobile devices is proving to be difficult, even for leaders like Google. No wonder Google is looking beyond search.
The low click-through rates mentioned above contributed to Google’s disappointing quarterly results. Despite paid clicks growing 33% over the year, revenues from cost-per-click fell 15%over the year and 3% over the previous quarter. The declining trend led to revenues falling short of market expectations. Q3 revenues of $11.3 billion missed the expectations of $11.8 billion. EPS of $9.03 was also significantly short of the Street’s targeted $10.65 per share.
By segment, Google sites revenues grew 15% over the year to $7.73 billion, missing the market’s targeted $8.12 billion. Network revenues of $3.13 billion were 21% higher than the previous year.
Google Grows in Mobile
Google realizes the importance of mobile to its future. Android continues to do well and was ranked as the leading OS in the smartphone market. According to an IDC report released for the second quarter this year, Android devices accounted for a 68.1% share of the worldwide smartphone market. iOS accounts for a distant 16.9% share.
Today more than 500 million Android devices are already activated, and the daily activation rate of Android-based phones is expected to be around 1.3 million. Google expects revenues from mobile services to grow to $8 billion annually. Till last year, mobile services were generating revenues of about $2.5 billion. The growth in mobile revenues is attributed to their purchase of Motorola Mobility and the success of Google Play.
It is not just services. Google is also working on developing mobile devices. Earlier last quarter, it announced the launch of the Nexus 7 tablet. The Android-based tablet is priced at $199 and was awarded the Gadget of the Year from T3. Although Google did not divulge sales figures, analysts estimate that Google sold close to one million Nexus 7 tablets within three months of its launch.
Gartner estimates that more than 120 million tablet devices will be sold this year. Google is trying to gain a bigger foothold in this growing market. Researchers believe that the company is set to launch an updated Nexus 7 by the end of this month. They are looking forward to a 32 GB, 7-inch and, possibly, a 10-inch Nexus version that will be powered by the upgraded Android 4.2 version.
The market is also excited by the launch of Google’s Chromebook, a Google Chrome OS–based laptop that has been manufactured by Samsung and priced at $249. Google believes that it will be able to successfully compete in the laptop market because of the Chromebook’s attractive features and impressive price point. The laptop weighs in at 2.5 pounds, is 0.8 inches thick, and comes with 6.5 hours of battery life and an 11.6-inch display screen. Its shortfalls lie in its 2 GB of RAM, an unimpressive display resolution, and a VGA camera. However, it is still considered a good value for money.
Despite the problems earlier in the week with the unintentional early release of Google’s results, the market is reacting positively to the company moves. The stock is trading at $680.35, with a market capitalization of $222.5 billion. It touched a 52-week high of $774.38 earlier this month.