Google flies high -- but Motorola sinks further

Google's solid Q3 profits marred by underperforming Motorola Mobile and little word about future directions for the division

The good news about Google in its third-quarter results aren't hard to find: The company beat analyst estimates for revenue and earnings per share. But there is bad news, and it hints at how the company's big mobile hardware investment may be a much longer-term proposition for a profit.

Nobody, save maybe for Google's competition, is complaining about the company's revenues: $14.89 billion total, $11.92 billion net, up 12 percent from Q3 2012. The projections were for $11.7 billion revenue, and a $10.36 EPS (for the latter, Google made $10.74). Small wonder Google's shares jumped some 5 percent in after-hours trading.

One sign of how Google's business could change up with the ongoing shift away from desktops and toward mobile devices, is the dropping cost-per-click, or CPC, rate. A metric that measures the average price for an ad, CPC fell 8 percent over last year, and 4 percent from Q2, even while paid clicks rose 26 percent year-over-year and went up 8 percent from Q2.

Carolina Milanesi, a research VP at Gartner, described these steady-rather-than-drastic changes as a consequence of the movement toward mobile ads, "where there is a reluctance to pay as much." On the other hand, "the main thing is that more users are clicking on the ads that Google is serving."

Some of that may be due to the recently launched Enhanced Campaigns ad system (courtesy of its acquisition of AdMob). But other hints of how that might be happening came during the quarterly analyst conference call, where Chief Business Officer Nikesh Arora talked about how localized product-listing ads (a major component of the mobile ad strategy) and the transition "from links to answers" has been playing out.

"We’re transitioning from links to answers," he said, referring to the way Google has been reworking its results via its Hummingbird tuneup, "and product-listing ads are part of that because they're a good experience for the user, especially on mobile devices." But he declined to comment "on how that will impact going forward."

If Google plans to continue making up in volume what it loses in individual sales, it may well be one of the few entities on the planet with the muscle and the means to do so.

But Motorola Mobility, the in-house hardware side of Google's mobile strategy, hasn't experienced a turnaround of its own. Instead, it's slid even further into the red, with a Q3 loss of $248 million. At least the dip wasn't as pronounced as in Q2, where Motorola lost $342 million. Total Q3 revenue: $1.18 billion, down from $1.78 billion last year.

The real question: Is anyone even surprised by such lackluster performance? Under Google's stewardship, Motorola hasn't differentiated itself except by being remarkably underwhelming in most every respect. The U.S.-made Moto X phones have stolen no thunder from the likes of Samsung's Galaxy S4, let alone the iPhone 5s, and its "Motomaker" customization system hasn't done much for sales either.

Milanesi's observation on this point was blunt: "It is hard to see what the advantage of having Moto is, considering the fact that they have lost close to $1 billion." But she also pointed out Google is "looking years ahead, not quarters ahead, a strategy that might make earnings analysis quite complex as we do not see the quick results on investments such as Moto."

On the analyst call, CFO Patrick Pichette reiterated a similar line: The company had a quality product in the Moto X, and it was still the early days for the new Motorola. How long those early days will go on is another story entirely -- especially with the mobile market fast becoming a settled field with Apple on top, Samsung under that, and everyone else far, far behind.

This article, "Google flies high -- but Motorola sinks further," was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest business technology news, follow InfoWorld.com on Twitter.

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