Google share price surges after positive second quarter earnings report

 
Nassos Stylianou
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Google's share price soars after the latest earnings report (Source: Getty)

Safe to say that shareholders are satisfied with Google's latest batch of results.

Shares in the search titan climbed today, up four per cent as investors piled into the stock following the firm's second quarter earnings report.

The company led the S&P Index higher as US markets regain losses following Thursday's ruthless selloff prompted by fears of the potential geopolitical implications resulting from the downing of the MH17 Malaysian airliner in eastern Ukraine.

Google reported a 22 per cent jump in revenue to $16bn (£9.4bn) during period from March to June this year compared to 2013, with profits six per cent higher, coming in at $3.4 (£2bn) for the second quarter.

"We are moving forward with great product momentum," said chief financial officer Patrick Pichette.

The revenue figures, which topped analyst expectations - profit had just missed Wall Street estimates - meant that the internet giant posted its 18th consecutive quarter of revenue growth above 20 per cent.

The chart below shows revenue and profit at Google over the last ten years.

Today's share price leap is in stark contrast to traders’ reactions following the San Francisco based internet giant's previous trading update in April. Investors were concerned by Google's plummeting advertising rates - which recorded a nine per cent drop in the first quarter compared to the same period in last year.

The persisting decline in the average prices for the ads that appear alongside search results and other web content, a measure known as "cost per click", continues to plummet and has dropped consecutively for the last 11 quarters.

The last time Google's cost per click measure had increased was in 2011 and a major reason for the persistent dip is the steady growth in mobile, where raising similar amounts through advertising has been particularly problematic. Ad rates on mobile phones are cheaper than the traditional online ads because of their smaller screens, as marketers have been less willing to pay as much for adverts going out on smarthphones.

In the second quarter of 2014, the average price fell by 6 percent from the same time last year. While the price Google receives for each ad is still going down, this was actually the lowest decline in the last year.

But the impact of the transition from desktop to mobile has been cushioned by the fact that people continue to click on ads more frequently. The volume of activity, which continues to rise, is fundamental because Google charges advertisers when people click on a promotional link across not only search but also from YouTube engagement ads and other owned and operated properties like Google Maps and Google Finance.

Google's volume of paid clicks shows no signs of declining as it rose steeply by 25 per cent in the last three months from the second quarter last year.

While the previous chart shows Google ads are getting cheaper - albeit this quarter at a lower rate - the next chart shows how at least there are consistently many more of them.

So with industry executives growing confident advertisers will - in the not so distant future - be willing to pay more to reach out to potential customers on smartphones and tablets as mobile computing becomes even more ubiquitous, no wonder shareholders are viewing Google's latest results in such a positive light.

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