POSTED: Wednesday, January 23, 2013 - 7:30am
UPDATED: Wednesday, January 23, 2013 - 7:34am
CNN — Google's got a mobile dilemma.
The search giant's sales soared in the fourth quarter as clicks on ads exploded, boosted by mobile searches -- but the amount that advertisers paid Google for those clicks continued to slip. Google also lost money on its Motorola business.
Google said its revenue rose 39 percent to $11.3 billion in the fourth quarter, excluding advertising sales that it shares with partners. Net income rose to $2.89 billion, up 6.6 percent from a year ago. Shares of Google rose by 5 percent in after hours trading.
The number of paid clicks Google racked up surged 24 percent, but the cost per click fell 6 percent compared to last year -- the fifth consecutive quarter in which average click costs fell.
Through a search deal with Apple, and by activating 1 million Android devices a day, Google controls a 93.3 percent share of the U.S. mobile search ad market, according to online advertising analysis firm eMarketer. Though that's a stunning achievement, the entire market is worth less than $2 billion, eMarketer says.
"Advertisers remain hesitant to pay rates per mobile click comparable to those on the desktop, as mobile searchers are still less likely to convert into purchasers than their desktop counterparts," according to eMarketer's Clark Fredricksen.
Yet Google said consumers are beginning to change their behavior on mobile devices, and they're becoming more willing to make purchases on them.
"Distinctions between devices are becoming less meaningful," Nikesh Arora, Google's chief business officer, said on a conference call with analysts.
Google CEO Larry Page said on the call that he doesn't expect the cost-per-click issue to be a "long-term problem," though he wouldn't predict when cost-per-click would be more closely aligned with overall click growth.
Google is still experimenting in the field. The influx of mobile ads was overwhelming users, company executives said, so the company changed its rules this month to reduce the number of ads on its mobile search site. Google said that will result in better-quality ads and a higher cost-per-click in the coming quarters, though the number of clicks will drop.
Google's mobile challenges didn't end with search. Motorola's mobile business lost $353 million in the quarter. Patrick Pichette, Google's chief financial officer, said that the company has made "a ton of progress" in restructuring Motorola, but he expects Motorola's financial results to be volatile "for quite awhile."
"We do care about profitability; we're not in the business of losing money with Motorola," Pichette said. "It's just the nature of the beast when you're restructuring."
The changes Google has made include outsourcing Motorola's manufacturing, laying off 4,000 employees and selling the cable box division.
Investors also remain concerned about Google's expanding focus on businesses that aren't related to search, which makes up more than 90 percent of the company's sales. But during its call with analysts, the company called out a prime example of how its investments in its other businesses continue to pay off.
The "Gangnam Style" music video, which was the first on YouTube to reach 1 billion views, generated $8 million in advertising deals, Arora said. A portion of that revenue went to the video's creators.