MOUNTAIN VIEW — Google released a first-quarter earnings report on Wednesday that showed the internet giant is still growing but struggling to boost earnings as much as investors would like.
Sales increased 19% for the quarter, bringing total revenue to $15.4 billion or $12.2 billion after payment of sales commissions. Google’s profit rose 3% to $3.45 billion, or earnings of $5.04 per share, or $6.27 per share excluding one-time charges.
That was below Wall Street projections: Analysts polled by Thomson Reuters had expected, on average, earnings of $5.28 per share, or $6.40 per share excluding one-time charges, on revenue of $15.5 billion. Google shares fell more than 3% in late trading after the report was released.
While CEO Larry Page called it “another great quarter” in a prepared statement, Pivotal Research analyst Brian Wieser said Google was having a harder time maintaining its historically rich profit margins as it expands. in new ventures that result in higher costs.
“Revenue is good,” Wieser said, referring to Google’s overall sales growth. “Margins are eroding as they continue to invest in a lower profit margin profile. That’s what we see here.
Google’s results include heavy spending on new data center capacity and unusual spending associated with recent acquisitions, in particular its $3.2 billion purchase of Nest, which makes internet-connected thermostats, said to the analysts the chief financial officer Patrick Pichette.
While it has long dominated the Internet search advertising business, Google is expanding into other types of advertising and new businesses, including consumer gadgets, which come with higher operating costs and lower profits. Google has benefited from low operating expenses because search ads are mostly sold through an automated process, Wieser noted.
Google collected a third of global digital ad spend last year, according to eMarketer. For the first quarter, Google said its volume of “paid clicks,” or instances where people clicked on Google ads, increased 26% from a year earlier.
But the growing popularity of smartphones and tablets has posed a challenge: Google’s average “cost-per-click,” or the price advertisers are willing to bid for ads, has steadily declined as advertisers don’t think customers make just as many purchases on mobile devices. The first quarter average was down 9% from a year earlier.
Google is working to improve the quality of mobile ads and convince advertisers of their effectiveness, said Chief Commercial Officer Nikesh Arora. He predicted that prices for mobile ads will rise as advertisers see them working.
Follow this journalist on Twitter.com/brandonbailey or google.com/+BrandonBaileyOnline or on Facebook at http://on.fb.me/ULIOfb.