Google Drops on Earnings Miss As Paid Clicks Decline

Tickers in this article: GOOG GOOGL

Updated from 4:20 p.m. to include comments from the earnings call.

NEW YORK ( TheStreet) -- Google shares plunged after the Internet search giant posted first-quarter earnings that missed Wall Street expectations, and paid clicks fell from the first quarter.

For the first-quarter, Google's non-GAAP earnings came in at $6.27 per share on $12.19 billion in revenue, excluding traffic acquisition costs (TAC). Google site revenue of $10.47 billion rose 21% from last year's first quarter and accounted for 68% of Google's revenue. Including TAC, Google generated $15.45 billion in revenue for the quarter.

Google shares were falling in after-hours, losing 2.7% to $541.50, at last check. Shares of Google closed up 3.7% to $556.54 in Wednesday's regular trading session.


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For this quarter, analysts surveyed by Thomson Reuters were expecting Google to earn $6.40 a share on $15.52 billion in revenue, though that number likely includes traffic acquisition costs. Generally, analysts exclude TAC to drill down and get a truer number. Analysts surveyed by Estimize were expecting earnings of $6.19 a share on $12.87 billion in sales.

"We completed another great quarter. Google's revenue was $15.4 billion, up 19% year on year," said Google's CEO Larry Page in the press release. "We got lots of product improvements done, especially on mobile. I'm also excited with progress on our emerging businesses."

The company noted that cost-per-click (CPC), a key advertising metric, remained flat from the previous quarter, noting that perhaps the company's initiatives to bundle advertising buying on various platforms, is working. However, CPCs still fell 9% year over year. Paid clicks, which include clicks related to ads served on Google sites and the sites of its Network members, increased approximately 26% year-over-year, but fell 1% sequentially.

On the earnings call, Nikesh Arora, Google's Senior Vice President and Chief Business Officer noted that CPCs will start to move higher as more advertisers begin to understand mobile devices. He noted that in the medium to long-term, mobile ad pricing will be better than desktop because you know more about the user and the context of what they're doing, and searching for. Additionally, Google is working to making its payment enabling system easier, which should cause CPCs to rise, but getting advertisers to focus on the mobile side as opposed to desktop is a much harder initiative, and will take some time.

Google noted the net loss from discontinued operations, which includes Motorola, was $198 million, compared to a net loss of $182 million in the first quarter of 2013.

Google ended the quarter with $59.38 billion in cash and cash equivalents, up from $58.72 billion at the end of calendar year 2013. At the end of the first-quarter, including employees related to Motorola Mobility, Google had 49,829 full-time employees, with 46,170 in Google and 3,659 in Motorola Mobile.