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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.
- 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.)