GOOGLE IS getting back on its game. The first three months of the year might have been a challenge for Google from a public relations point of view, with US politicians and state attorneys general, European regulators and ordinary users troubled by the search giant’s new privacy policy. But its financial numbers were another matter, largely rebounding from a weak fourth quarter.
Along with its quarterly results, released after the markets closed on Thursday, Google announced what would effectively be a two-for-one stock split. The split will create a new class of nonvoting shares and allow the company to reward its employees with stock without diluting existing shareholders.
It is the first time Google, which went public in 2004, has split its shares.
The stock was down 3.13 per cent to €630.77 just before noon in New York yesterday.
Google co-founder Larry Page, who took over as chief executive last April, said it was simply “a very strong quarter”. Net income rose 60 per cent to $2.89 billion (€2.2 billion), or $8.88 a share, compared with $1.8 billion, or $5.59 a share, in the same quarter a year earlier. Revenue rose 24 per cent to $10.65 billion.
During a conference call with analysts, Google executives were peppered with several questions about the amount advertisers pay for clicks on Google ads, a metric called cost-per-click. It dropped 12 per cent from the quarter a year ago and 6 per cent from the fourth quarter. But the number of paid clicks was up 39 per cent from the comparable quarter a year ago and up 7 per cent from the fourth quarter of 2011.
Google earns nearly all its money from advertising. As computing shifts from desktops to mobile devices, there are concerns that this revenue stream will become less lucrative. Cost-per-click fell in the fourth quarter, too, worrying analysts that this was becoming a trend.
No worries, the executives said. The drops in cost-per-click “don’t reflect the fundamental health of our business”, said Google chief financial officer Patrick Pichette.
Colin Gillis, an analyst with BGC Partners, was not convinced. “No matter what they say, advertisers are valuing Google’s inventory less,” he said.
Google did not set a date for its new stock structure, which is technically a stock dividend. The new shares will trade alongside the current shares on the Nasdaq exchange, identical except for their lack of voting rights. While a purpose of the new shares will be to make acquisitions, Mr Page said that did not mean any deals were being planned at this time.
None of the executives on the conference call directly addressed the concerns about privacy that generated so much attention over the past three months.
The company has said it would construct a unified user profile as users watched YouTube, wrote emails and searched for diversion or information. It called it “a simpler, more intuitive Google experience”.
Some users called it invasive and complained noisily. Arch-rival Microsoft ran mocking ads. Politicians took notice. A former Google employee, James Whittaker, now working for Microsoft, wrote on a Microsoft blog that the company had lost its soul.
US senator Al Franken, chairman of the Senate subcommittee on privacy, technology and the law, gave a speech to the American Bar Association’s anti-trust section that could not have thrilled company executives.
Referring specifically to Google and Facebook, Mr Franken asked: “Shouldn’t we be concerned that, as these companies that trade in your personal information keep getting bigger and bigger, they become less and less accountable?”
Some of those who follow the privacy issue closely said the reaction to Google’s approach to data collection was overblown and misunderstood. But that was partly the company’s fault. “They can’t go back and look at this and say, ‘That was a great roll out.’ It was a nightmare,” said Danny Sullivan, who writes the Search Engine Land blog.
Mr Page seemed to reflect an awareness of this when he posted an open letter on the Google site that said: “We have always wanted Google to be a company that is deserving of great love.”
To earn that love, at least from investors, Mr Page will have to surmount several challenges in the next year. Foremost is doing a better job of anticipating privacy issues while improving the experience for advertisers. Then there is Google’s need to swallow its $12.5 billion acquisition of handset maker Motorola Mobility.
The deal was met with puzzlement from analysts, who said marrying a troubled phone manufacturer with a tech company that creates software used by many phone makers was fraught with problems.
Finally, an intangible: Google, almost from its birth in the dot-com bubble, defined cool. As Google enters middle age, it needs to show it can remain appealing as younger companies vie for the same engineering talent. (The new shares can be used to entice them.)
Mr Page seemed to acknowledge as much on Thursday.
“Google is a large company now,” he said. “We will achieve more and do it faster if we approach life with the passion and the soul of a start-up.” – (New York Times service)
