SAN FRANCISCO — As far as Wall Street is concerned, Google Inc. can build all the robots and self-driving cars that it wants as long as it keeps growing its main business: online advertising.
And increasingly, that means selling ads that are shown on mobile devices.
Google reported Thursday that fourth-quarter net income and revenue rose 17%, to $3.38 billion and $16.86 billion, respectively. The technology giant, however, continued to struggle with a decline in online ad prices. Google's average ad price in the fourth quarter fell 11% from a year earlier.
That's the ninth straight quarter of decline, said BGC Partners analyst Colin Gillis. And the latest decline was worse than he expected.
Prices are being driven down because rates for ads shown on mobile devices are lower than on personal computers. Advertisers are reluctant to pay as much to reach potential customers on smaller screens.
By and large, Wall Street investors seem less concerned than they used to be about the decline in prices because the number of paid clicks have increased. In the fourth quarter, the number of paid clicks rose 31%.
But Gillis said Google will face growing pressure to increase prices and prove it can be as effective an advertising platform on mobile devices as on personal computers.
"It's good that you can sell more of an item, but it's never good if people are paying less for the item at the same time," Gillis said. "Lower click pricing means clicks are not converting or they are worth less, and a lot of that is mobile. Mobile doesn't convert well."
Google has attacked the challenge of selling ads on mobile devices by bundling personal computer and mobile ads with "enhanced campaigns."
Nikesh Arora, senior vice president and chief business officer at Google, said Thursday during an earnings call with analysts that advertisers are "embracing" ads running on mobile devices and personal computers.
"We are very happy with the progress," Arora said.
Analysts are less happy. "Enhanced campaigns have not enhanced pricing yet," Gillis said.
The fourth quarter is usually Google's strongest because retailers spend a lot of money on ads during the holiday shopping season.
Google released its earnings report a day after Facebook Inc. handily beat analyst estimates with a 63% jump in revenue, largely on the strength of its mobile advertising business.
Google reported earnings, excluding certain items, of $12.01 a share on revenue of $16.86 billion. Analysts had expected earnings of $12.20 a share on revenue of $16.75 billion.
Edward Jones analyst Josh Olson blamed the earnings miss on the shift to lower-cost mobile ads and continuing losses from its Motorola Mobility unit. Motorola lost $384 million in the quarter.
On Wednesday, Google announced plans to sell Motorola to Lenovo Group for $2.91 billion, sending its stock price up 2.6%.
"Overall we think this was a good quarter for the core search advertising business," Olson said.
The earnings report came after the market closed Thursday with Google shares up $28.47, or 2.6%, to $1,135.39. Despite the earnings miss, Google shares rose $46.71, or about 4%, to $1,182.10 in after-hours trading on the heels of Google's announcement that it had scheduled its long-delayed stock split for April 2.
Some Google shareholders had protested the split, saying it would give the company's two co-founders, Larry Page and Sergey Brin, too much control over the Internet's most powerful company. The split creates a new class of C shares that carries no voting power.
Google's stock has risen more than 50% over the last year.Copyright © 2014, The Baltimore Sun