Behind Google's lower-than-expected performance: Search business is becoming increasingly saturated

On October 17, Google released its third quarter financial report for the fiscal year 2014 ending September 30. The report showed that Google 's total revenue in the third quarter was $16.52 billion, a 20% increase from $13.75 billion in the same period last year; according to US generally accepted accounting principles, Google's net profit in the third quarter was $2.81 billion, a 5% decrease from $2.97 billion in the same period last year.

The financial report shows that Google's net profit in the third quarter failed to meet analysts' expectations due to the slowdown in the growth of paid clicks on advertisements on its website. Google's revenue in the third quarter was $16.52 billion, lower than the $16.57 billion expected by analysts; net profit, excluding equity incentive expenses and other expenses, was $6.35 per diluted share not measured in accordance with US generally accepted accounting principles, which exceeded $5.63 in the same period last year, but lower than the $6.53 expected by analysts.

Google CEO Larry Page has been working hard to increase traffic to the company's website. Data shows that Google's paid ad clicks grew by about 17% in the third quarter, much lower than the previous quarter. At the same time, Google's own website revenue grew by 20%, compared with 23% in the previous quarter. Although Google has been looking to expand more channels and places to place ads, these measures are still not enough to make up for the slowdown in the growth of paid ad clicks on Google's main search website.

"There's always the concern that the core business will slow down," said Colin Gillis, an analyst at market research firm BGC. "Search is becoming saturated, and that's already showing up in the slowdown in Google's core business."

After the release of its third-quarter earnings report, Google's stock price fell 6.3% after the market closed. In regular trading on Thursday's New York Stock Exchange, Google's stock price fell $5.52 to close at $524.51, a drop of 1.04%. So far this year, Google's stock price has fallen 4.3%.

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Google's net profit in the third quarter fell 5.4% year-on-year to $2.81 billion (including the income related to the sale of Motorola Mobility to Lenovo), and diluted earnings per share were $4.09, compared with $2.97 billion and $4.38 in the same period last year. Google's operating expenses in the third quarter accounted for about 37% of total revenue, an increase of 33% year-on-year.

Data from market research firm IgnitionOne shows that as more and more users use smartphones to check email, manage their finances and use online services, about one-third of search advertising spending is now done on tablets and mobile phones, compared with only one-fifth a year ago. The data also shows that due to the lower cost of advertising on smartphones, total mobile advertising prices in the United States fell 9% in the third quarter of this year, while desktop advertising prices only fell 1%.

The average price per ad fell 2% in the most recent quarter. Meanwhile, Google remains the largest online advertising destination. However, users are increasingly turning to smartphones, and Google spends less on smartphone ads than it does on desktops and tablets. In addition, Google's ad prices have fallen as it expands into other international markets outside the United States, where advertisers spend much less on online marketing.

“The problem is that Google is able to get more traffic from Indonesia and Turkey and other international markets, but these are the regions that will be a thriving advertising market for Google in the future,” said Martin Pyykkonen, an analyst at Rosenblatt Securities in New York. “Countries like these are dominated by mobile traffic, so Google’s advertising revenue is affected.”

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Google is also stepping up efforts to support its services to attract more marketers. Last month, the company introduced several new tools and features that automatically adjust the size of desktop ad space to better suit mobile device users. In August, Google also added some mobile advertising features to show users what products are around them when they search for items.

In addition, Page is also increasing his business mergers and acquisitions. In the first half of this year, Google's spending on business mergers and acquisitions has more than tripled to $4.2 billion, including the acquisition of Nest Labs for $3.2 billion. In addition, Google also announced the acquisition of home camera company DropCam and satellite service company Skybox Imaging at a high price.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.