BREAKINGVIEWS - Google bogged down by shift to mobile hardware

NEW YORK Fri Jul 20, 2012 11:30am IST

A posed picture shows a Motorola Droid phone displaying the Google search page in New York August 15, 2011. REUTERS/Brendan McDermid/Files

A posed picture shows a Motorola Droid phone displaying the Google search page in New York August 15, 2011.

Credit: Reuters/Brendan McDermid/Files

Related Topics

Stocks

   

NEW YORK (Reuters Breakingviews) - Google (GOOG.O) is pressing hard in computing on the go. The internet search giant's second-quarter results show strong growth in Android handsets and mobile search. Google's numbers also now include Motorola Mobility. But the upfront costs of owning the handset maker mean progress isn't yet translating into profit.

The company's underlying business is doing well enough. It generated $12.2 billion of revenue in the quarter - 21 percent more than a year ago, ignoring Motorola. And another $3.5 billion of free cash flow means its prodigious war chest - now $43 billion - is growing apace. Any chief executive would crow - any, that is, except Google boss Larry Page, whose mysterious, long-running voice problems continue.

Page and Google are speaking loudly with their actions, though, when it comes to mobile computing. The biggest was the $12.5 billion acquisition of Motorola, which closed in May. It isn't paying off just yet. The division posted a quarterly operating loss of $233 million.

Google's Android is further along but faces similar drags. There are now more than 400 million devices using the operating system. That's helping increase the number of mobile searches and pushed up the number of paid clicks 42 percent. That's great, but advertisers also aren't yet willing to pay much for mobile users. That weighed down the average cost per click 16 percent.

These growing pains explain why Google's earnings per share grew just 10 percent year-over-year in the three months ended June 30. Paying for tomorrow's jam reduces what's in the pantry today. Investors are skeptical about the investment. Google shares trade at just 14 times estimated 2012 earnings - the same multiple as the S&P 500 index.

That seems overly pessimistic, if only for the reason that advertisers are just starting to warm to the idea of reaching people on their phones and tablets. But until Google can show more solid progress escaping this mobile quagmire, the stock is bound to be bogged down by it.

CONTEXT NEWS

- Google on July 19 reported revenue of $12.2 billion for the second quarter, an increase of 35 percent over the same period last year. The results were the first to include Motorola Mobility - Google closed its $12.5 billion acquisition of the handset company in May. Without the additional revenue from Motorola Mobility, Google's revenue would have grown 21 percent.

- Earnings per share increased 10 percent from a year earlier to $8.42.

(Editing by Richard Beales and Martin Langfield)

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

FILED UNDER:

SAARC Summit

REUTERS SHOWCASE

E-Commerce Boom

E-Commerce Boom

Online grocers come up trumps in India's e-commerce boom   Full Article 

Reuters Poll

Reuters Poll

GDP growth to slow to 5.1 pct, but no rate cut yet  Full Article 

Oil Prices Fall

Oil Prices Fall

Oil at four-year low as OPEC production cut looks unlikely  Full Article 

Hughes Dies

Hughes Dies

Australia batsman Hughes passes away aged 25  Full Article 

Google in Europe

Google in Europe

Insight - Behind Google's Europe woes, American accents  Full Article 

India-focused Funds

India-focused Funds

India-focused hedge funds up over 40 pct YTD - HFR  Full Article 

Trade Deal

Trade Deal

WTO postpones trade deal by a day after last-minute objection.  Full Article 

Land Disputes

Land Disputes

Disputes over land for industry on the rise in India, angering locals - charities  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage