Google has revealed it expects to make $1 billion in revenue from mobile projects annually.
Investors had feared that Google, seeking new sources of growth, was spending recklessly on initiatives such as its Android mobile software, acquisitions, renewable energy projects and even automated cars, with uncertain returns.
In July, Google’s second-quarter earnings fell short of expectations, marking the first time in two years that the company had missed profit estimates.
It shows that the investments that management is making, like the ones that they made in the past are bearing fruit
But executives at the company offered investors what they said was a one-time glimpse of sales generated by its mobile and display advertising businesses. Those operations generated annualised revenue run rates of more than $1 billion and $2.5 billion, respectively – underscoring the outcome of investments into smartphones and online projects.
Google disclosed the two revenue numbers to give investors “confidence that where we’re investing in is really fueling great growth rates,” chief financial officer Patrick Pichette told analysts on a conference call.
Kaufman Brothers analyst Mayuresh Masurekar said Google’s $1 billion run rate in mobile was higher than investors had expected, but he noted that the $2.5 billion run rate in display advertising was a gross number, meaning that some of that revenue is paid to Google’s partners.
Still, he said, the numbers should ease investor concerns about the company’s spending.
“It shows that the investments that management is making, like the ones that they made in the past… are bearing fruit,” Masurekar said.
Quarterly results
The world’s largest internet search engine posted a third-quarter net income of $2.17 billion or $7.64 a share.
Analysts said strong growth across Google’s core advertising business led to a 25% surge in net revenue in the third quarter. Net revenue, which excludes fees that Google pays to partner websites, came to $5.48 billion, versus expectations for $5.27 billion. Net revenue in the 2009 third quarter was $4.38 billion.
“This is the best performance they’ve had in three years. We’re back to the old Google we know and love,” said RBC Capital Markets analyst Ross Sandler.
“Clearly search is holding up better than anyone expected,” while efforts to branch into display and mobile advertising are on track to become significant parts of the business, he noted.
Google has been on an acquisition spree, buying more than 20 companies in 2010, including several companies that were developing social networking technology.
The company added more than 1,500 employees to its payroll in the third quarter – which some analysts said was a record pace for the company – and its operating expenses totaled $2.19 billion, up from $1.64 billion in the year-ago quarter. CFO Pichette said the internet industry was waging a “war for talent.”
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