Google announces mixed 2Q14 results
Google (GOOGL) announced its 2Q14 results last week. Although its revenues of $15.96 billion were better than analysts’ expectations of $15.61 billion, its earnings per share (or EPS) of $6.08 were below analysts’ expectations of $6.24. Google’s revenues increased by 23% from the same quarter last year and 3% over the last quarter. The main driver of this growth was the year-over-year (or YoY) increase in the number of paid clicks by 25%. However, the aggregate cost per click metric was down by 6% YoY.
Google losing advertising market share to Facebook
Although Google’s revenues were better than expectations, the growth still isn’t fast enough. As a result, Google could lose share in the digital advertising market this year. This prediction is made by eMarketer, which estimates that Google’s share in the worldwide digital advertising market could decline slightly from 31.9% in 2013 to 31.5% in 2014, as the previous chart shows. Facebook (FB) is a bigger threat to Google’s dominance although it’s still a comparatively smaller player in this market. Facebook’s market share could increase from 5.8% in 2013 to 7.8% in 2014, while Microsoft’s (MSFT) market share could remain stagnant at 2.5%. Yahoo (YHOO) and IAC (IACI) are other smaller players in this market.
Nikesh Arora’s exit could create more issues for Google
Google’s senior vice president and chief business officer, Nikesh Arora, left the company to join SoftBank (or SFTBF). Mr. Arora was considered the most important executive in Google. His departure will be a huge loss for Google. He was instrumental in Google achieving a dominant position in the search advertising market.
Google’s lower EPS due to increasing expenses
As discussed above, Google’s EPS was lower than analysts’s expectations. The main reason for the increase in operating expenses are Google’s entry into new markets such as home automation, driver-less cars, Google Fiber, and the wearable device market with products like Google Glass and smartwatches. Although these business lines could benefit Google in future, currently these are pure investments for the company.