Google Misses Street’s Estimates Due to Rising Dollar And Falling Ad Prices

The world’s largest search engine, Google Inc. (NASDAQ:GOOGL), reported on Friday its quarterly results for last 3 month-end on December 31st. The company missed analyst forecast of earnings and revenue, attributed to unfavorable exchange rate and falling online advertisement prices. Although, the tech giant missed analysts’ forecast, it produced a strong quarterly result. The stock price of Google Inc. surged more than $29.

Google net revenues for the last quarter of 2014 were $18.1 billion, compared to $15.71 in the same period last year. Net revenues rose 15% year-on-year (YoY).

The earnings of the company jumped 41% to $4.76 billion ($6.91 per share), up from $3.38 billion ($4.95 per share). Adjusted earnings per share (EPS) were $6.88.

The Wall Street estimated EPS of $7.11 with $14.7 billion net revenues.

"Business is slowing. The core is slowing. And what we're saying is, it's going to look on paper even worse as the dollar strengthens. And we are not at that point where mobile monetization is improving," an analyst of BGC Partners, Colin Gilis, said. "The thesis that the landscape is changing and Google is missing out - I don't think it will hold to be true, but they haven't squelched it."

According to CFO of Google, Patrick Pichette, “strong U.S. dollar”, “unusual charges” and incapability of company to meet Nexus 6 demand were the reasons the earnings fell in the last quarter.

California-based company reported that currency headwinds hit its revenues by about $541 million in the fourth quarter, compared to same period last year. The strengthening of dollar reduced Google’s earnings in the foreign markets.

Total paid clicks rose 14% YoY and 11% quarter-over-quarter in the fourth quarter of 2014. Although, frequency of clicks increased during the period, Google’s digital advertisement average price decline persisted. People have started using Google services through their smartphones and tablets, where ad prices are comparatively low. Average price per ad slot plunged 3% YoY in the quarter.

Moreover, heavy competition from Facebook Inc., (NASDAQ:FB), has also put a lot of pressure on the technology giant. Facebook’s mobile ads doubled over the year in fourth quarter of 2014.

Google’s operating expenses growth is getting faster than its revenues. Operating-profit margin of the company was 24% in the quarter, while operating-profit margin in the prior-year quarter was around 24%.

Google work-force has increased to 53,600, as it hired around 5,000 workers in last six months. General and administrative expenses mounted 34.54% YoY to $1.59 billion. Research and development expenses rose 45.53% to $2.81 billion. Cost of revenues increased by 10.68% to $6.92 billion.

Stock of Google jumped more than $29 after the result was announced by the company.