Still Buoyed by Search Business, Google Posts 21% Revenue Growth

Paid Search Clicks Up 42% From Last Year, But CPCs Are Down 16%

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The Google juggernaut churns on, buoyed by a core search business that has experienced a surge of paid clicks advertisers are paying substantially less for than they did a year ago.

In its second-quarter earnings report for the period ending June 30, Google stated that aggregate paid clicks had increased 42% from the same period last year, while the average cost per click had dropped 16%. (However, CPCs appear to have stabilized somewhat since the first quarter, growing 1%.)

The end result was still 21% revenue growth, up to $10.96 billion from $9.03 billion a year ago. Revenue from Motorola -- which Google finalized its purchase of in May -- kicked in another $1.25 billion though it had an operating loss of $233 million, bringing total revenue to $12.21 billion.

Net income was $2.79 billion, up 11% from $2.51 billion last year.

As Google's revenue growth slows, one perceived threat to the continuing strength of its search business comes from the surge in mobile usage, which monetizes at a lower cost per click and has been a contributing factor to Google's declining CPCs over the past year.

Chief Business Officer Nikesh Arora acknowledged that Google's mobile search ad business is still in its infancy. "For us, mobile is like desktop was in 1999: smart marketers are getting great ROI," he said during the earnings call Thursday afternoon.

According to research from digital agency 360i across its client base, up to 30% of brand search terms are now being conducted on mobile devices.

"It's good for advertisers, but maybe not as good for revenue in the short term for Google," said Roger Barnette, president of IgnitionOne, who added that he expects mobile CPCs to rise as competition builds in the auction environment. He said that 14% of paid-search budgets among IgnitionOne clients were designated for mobile this quarter, up from 12% in the first three months of the year.

Google CEO Larry Page wasn't on the call, but Mr. Arora stepped in to tout the performance of past acquisitions such as DoubleClick, Admeld and AdMob, though he didn't break out revenue numbers. He lingered over developments at YouTube, noting that thousands of "partners" are making six figures off advertising and that Unilever, AT&T and American Express had committed to sponsorships of its new original-content channels.

Mr. Arora said that in 2007, the press frequently opined that "YouTube was groping for a business model, but I think we can declare we've found our model."

Google+ was only addressed later in the call by Susan Wojcicki, Google's senior VP-advertising, who said that 250 million users have now signed up for the service and created a profile on it, but she didn't delve into usage statistics. It was a departure from the heady enthusiasm for Google+ expressed by Mr. Page during earnings in October, when he opened his remarks by talking about the platform.

Google added 21,500 employees last quarter, the majority of whom came from Motorola, lifting its total headcount to 54,600.

The company also reported that 54% of revenue this quarter came from outside of the U.S.

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