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Google's latest letdown: Simply not enough billions since October

Revenue and income miss their marks amid rising costs

Google's coffers swelled once again in the fourth quarter of its fiscal 2014, with revenues hitting $18.10bn, a 15.3 per cent year-on-year increase.

The figures for the full year to December 31 were similarly encouraging. Revenues for all of fiscal 2014 amounted to $66bn, which was 18.9 per cent higher than 2013's sales. Net income for the full year was up 11.8 per cent, to $14.44bn.

But although Google's quarterly sales were as impressive as ever, they weren't enough to appease the financial analysts, who were hoping to see quarterly revenues of $18.46bn. The firm's earnings similarly missed the mark, at just $6.88 per diluted share.

Google blamed some of this shortfall on the strengthening US dollar. Had international exchange rates remained consistent from the third quarter, the company said, its revenues for the fourth quarter would have been $616m higher.

From a profit perspective, however, there was little to worry about. Google's net income for Q4 was $4.76bn, up a full 40.9 per cent from the same period a year ago.

As always, though it's ostensibly a technology company, Google owed most of its good fortune to the advertising business. Ads accounted for 89.2 per cent of the firm's revenue in the fourth quarter and 89.5 per cent of its revenue for all of fiscal 2014.

Of those Q4 revenues, 68.7 per cent came from ads served on Google's own sites, which brought in 18 per cent more revenues than in the fourth quarter of 2013. Revenues from sites that participate in Google's ad network, on the other hand, were up just 6 per cent.

To ad and ad not

More people engaged with ads on Google's own sites than on network sites, too. Paid clicks for Google sites were up 25 per cent, year-on-year, while paid clicks on network sites were down 11 per cent.

That was too bad for the Chocolate Factory, because while the network sites' average cost per click – the fees advertisers pay Google – was up 6 per cent, the cost per click for Google sites was down 3 per cent.

Google's traffic acquisition costs (TAC), on the other hand – the portion of ad revenues that the firm shares with its partners – were up 9.4 per cent over Q4 of 2013, to $3.62bn. But TAC as a percentage of Google's quarterly revenue was just 22 per cent, while it was 24 per cent in Q4 of 2013.

Meanwhile, Google's "other" businesses – which include everything from app and media sales in the Play Store to fees for Google's cloud computing services – brought in revenues of $1.95bn, which was up 18.6 per cent from last year's quarter.

If Google plans to slug it out with the likes of Amazon and Microsoft for the cloud computing future, however, it needs to invest heavily in building out its data centers – and invest it has. It spent $3.55bn on purchases of property and equipment in the fourth quarter, which was 57.5 per cent more than in the same period the previous year. Property and equipment expenditures for the full year were $11bn, a 49 per cent hike.

Google also increased its staff in the fourth quarter by 4 per cent over Q3's figure, with its total head count reaching 53,600 full-time staffers.

"From an investment perspective, we'll continue to seek a healthy balance between growth and discipline and the willingness to throttle back when we reach the limits of what we can manageably absorb," Google CFO Patrick Pichette said on Thursday in a conference call with financial analysts.

If investors were concerned over the online ad-slinger's low earnings performance, however, they didn't show it. Although Google's share price wobbled slightly on the news, it was back to its former levels in after-hours trading shortly after Thursday's closing bell. ®

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