Google's Q4 earnings rise despite Motorola woes

Google's fourth quarter ad revenues up 19%

Google managed to eke out slightly higher earnings in the fourth quarter, it said last night.

This was despite a financial drag caused by the Internet search leader's expansion into device manufacturing.

It also saw a decline in digital ad prices as more people use the smaller screens of smartphones.

The results pleased investors, helping to lift Google's stock by nearly 5% in extended trading.

More advertising poured into Google during the Christmas shopping season, fueling a moneymaking machine that has steadily churned out higher profits since the company went public in 2004.

Google's fourth-quarter ad revenue totalled $12.1 billion, a 19% increase from the previous year. Some of that money, though, has been shifting away from personal computers as advertisers try to connect with an expanding audience that relies on smartphones and tablet computers to reach Google's search engine, email and other online services.

By some estimates, about one-fourth of Google's search requests are now coming from mobile devices. So far, advertisers have been unwilling to pay much money to market their wares on mobile devices, largely because the smaller screens leave less room for commercial links and other marketing messages.

The trend is one of the reasons that the average price for the ads that Google shows next to its search results has fallen from the previous year in five consecutive quarters - including during the final three months of last year.

In a positive sign, though, Google's average ad prices in the most recent quarter dropped by just 6% from the same time in 2011. That is the smallest decline during the economic downturn.

Google said it earned nearly $2.9 billion, or $8.62 per share, during the fourth quarter. That compared to net income of $2.7 billion, or $8.22 per share, at the same time last year.

If not for the costs of employee stock compensation and certain other accounting items, Google said it would have earned $10.65 per share. On that basis, Google exceeded the average earnings estimate of $10.54.

It proved to be a difficult quarter to decipher because of an accounting quirk and the additions of new business lines that muddied the comparisons with the previous year.

Google did not own Motorola Mobility in 2011, having completed its $12.4 billion acquisition of the troubled handset maker eight months ago.Google is also bringing in more revenue from tablet computers, which it began selling under the Nexus brand during the final half of last year.

Things were further complicated by Google's recent agreement to sell a part of the Motorola Mobility division that makes cable TV boxes. That division is now accounted for as a discontinued operation whose revenue was not booked in the latest quarter, even though it will remain a part of Google until the $2.35 billion sale is completed later this year. Under that equation, revenue surged 36% from the previous year to $14.4 billion.

After subtracting advertising expenses, Google's revenue totaled $11.3 billion. That figure was well below the average analyst estimate of $12.1 billion, according to FactSet.

But many of the analyst forecasts included revenue from Motorola Mobility's set-top division, which Google excluded from its breakdown. Had the set-top division been included in Google's accounting, the company's net revenue would have matched analyst estimates.