Google's second-quarter earnings missed Wall Street estimates, as advertising revenue was dragged down by costs-per-click (CPC), which fell 6% year-over-year, and 2% sequentially.
While CPCs were weak, Google CFO Patrick Pichette made sure to note that aggregate paid clicks, "which include clicks related to ads served on Google sites and the sites of our Network members," increased approximately 23% year-over-year, and 4% sequentially.
For the second-quarter, Google earned $9.56 per share on $11.1 billion in revenue, excluding traffic acquisition costs (TAC). Analysts estimates called for $10.78 per share in earnings on $11.33 billion in sales, ex-TAC.
Google's advertising business is still pretty healthy, despite the fact that mobile ads are currently not as lucrative as desktop ads. Google's changing the way advertisers buy ads from it, by revamping Enhanced Campaigns, which is expected to pay huge dividends in the future.
By and large, many Wall Street analysts were positive on the stock longer-term, as Google cleans up its business, and sets itself up for the future.
Here's what some Wall Street analysts had to say following the results.
Deutsche Bank analyst Ross Sandler (Buy, $970 PT)
"Google reported core net revenue and EPS 1% and 8% below our estimate (and 12% below consensus), primarily a result of: 1) further Network revenue reductions from policy change, 2) lower margins, and 3) higher tax rate. Google’s most important metric, websites revenue growth, was in-line and up 18% Y/Y, demonstrating strong core fundamentals. We have largely maintained our 2014 core net revenue and reduced overall EBITDA by 2%, we would add to positions."
UBS analyst Eric Sheridan (Buy, $1,005 PT)
"In the medium term, we see multiple opportunities for accelerating growth: a) improved contribution from advertising products (PLAs, Enhanced AdWords Campaigns & YouTube); b) the lapping of policy changes depressing Network revenues; c) upcoming hardware launches including new Nexus tablets & Motorola smartphones; & d) increasing content sales via the Google Play app & media store."
Citi analyst Mark May (Buy, $945 PT)
"Google’s overall results in 2Q13 fell below our and most expectations, and follow reports from eBay and Yahoo! that were – with the exception of Alibaba Group –not a positive start to Internet earnings season. That said, the underperformance at Google came mainly from its Motorola and Networks segments, which appear to be facing transitional headwinds, while core Sites (74% of net revs) performed modestly better than anticipated. Motorola’s pre-Google handset lineup continues to fade while it invests ahead of an expected Moto X launch in August. Networks revs faced headwinds greater and for longer than we expected from its quality improvement initiatives. And, overall CPCs didn’t benefit as much as expected in 2Q from Enhanced Campaigns as this change will likely have more of a 2H13/CY14 impact. All told, while core Google ex Moto revs came in ~2% below consensus expectations and while we’re tweaking our forecasts, we continue to forecast 18% rev growth and $40.28 in adj. EPS in CY13, and view the valuation at 10x EV/CY14 adjusted EBITDA as attractive and the stock as a core holding."
Canaccord Genuity analyst Michael Graham (Buy, $940 PT)
"Google’s Q2 results saw both revenue and EPS below consensus. Q2 and Q3 seem like quarters of transition, first to a new Enhanced Campaign paradigm for AdWords, and to a better user experience (and slower growth) for Google Network. We remain attracted to secular positives, while recognizing that Google’s admirable quest to stay young and innovative may continue to push out realization of an “optimal” model. The next chapter may be a big hardware cycle, which could draw questions about structural margins. However, we continue to like Google’s dominant competitive position in a large and growing market."