We have long warned that the move to the mobile internet is the biggest disruptive force to hit our sector since the introduction of the PC in 1981 – maybe even the biggest disruptive force ever. We’ve seen how leading companies like Nokia and Blackberry have failed because of the move. We’ve seen how the King and Queen of the PC – Microsoft and Intel – have struggled in the new mobile internet world.
Now, perhaps, we can add another lead player of the desktop world to that list – Google.
On the surface, Google’s Q2 results are impressive. Revenues up 19% yoy to $14.1b. Profits were up 16% at $3.23b. But these failed to meet analyst expectations.
The main hit on the profits line was the $342m loss at Motorola. But the thing that really spooked everyone was the 6% drop in ‘cost per click’. Mobile advertising attracts a lower price per click than for the desktop – Google’s established stomping ground. On top of that users click on fewer ads when using a mobile. Indeed I don’t think I have EVER clicked on an ad link whilst using my mobile. The worrying question is whether this is a permanent feature which will continue to affect Google earnings. It’s a bit reminiscent of the slide in revenues for the record companies when consumers moved from physical to digital downloads. Same number of tunes bought but the revenues slid considerably. The disruption also allowed new entrants to ‘come eat your lunch’. But, as you might expect, Larry Page believes that ‘the shift from one screen to multiple screens and mobility creates tremendous opportunity for Google”.
Google shares had been one of the best performers this year – up c30% YTD. But that was before the after hours slide of c5% occasioned by these results. Many analysts had been forecasting “Google good to $1000 in 2013”. But I guess that will need revision now.
Note – Google’s UK revenues in Q2 were £1.32b or 10% of global revenues. They were 11% in Q2 2012. On my calculations that’s a UK growth rate of c9% - lower than the global 19% growth. Quite surprisingly, Google says recent warm weather in the UK affected ad revenues. But the heatwave only really started after Q2 had ended…