Google profits under pressure

Google’s profit and sales are under pressure as the operator of the largest search engine struggles to wring advertising revenue from the growing number of people surfing the web on tablets and smartphones.

The company yesterday reported third-quarter revenue, minus some items, of $11.3bn (€8.7bn), short of the analysts estimate of $11.8bn.

The shortfall caused the stock to tumbled 8% after the results were inadvertently released early.

Google, the biggest seller of search-based advertising, has not yet translated to mobile devices the success it’s had with desktop advertising.

Ads generated on smartphones can cost about 40% less than those on traditional computers and about 25% less than on tablets, Herman Leung, an analyst at SusquehannaInternational Group said.

“The big pressure is actually coming from mobile,” said Leung. “It’s a concern for investors because they just make less on mobile right now.”

Google shares rose less than 1% to $697.57 in New York. The stock yesterday dropped as much as 11% to $676 before the company asked Nasdaq OMX Group to temporarily halt trading. The stock had gained 7.6% this year through yesterday.

The average amount advertisers paid each time a user clicks on a promotion declined about 15% from a year earlier, and was 3% less than the prior period.

Google also struggled with its sites revenue, which includes its search- related ad business, the company’s core revenue generator. It grew 15% to $7.73bn from the same period a year earlier, less than half the growth Google reported in the third quarter of 2011.

That suggests consumers may be bypassing Google to seek out information on sites such as Amazon.com or Yelp, said Sameet Sinha, an analyst at B Riley & Co. “This is the main product, the most profitable product that they have,” Sinha said. “It’s just shocking.”

Google got off to a difficult start with the early release of the results. A statement in a regulatory filing — which was issued hours before the company had planned to report earnings — had a line at top that says: “Pending Larry quote.” Google blamed RR Donnelley & Sons Co, a company that handles financial printing, for the premature release.

RR Donnelley fell less than 1% to close at $10.76, following an earlier drop of 6.5%.

Google CEO Larry Page said he was “really excited about the progress we’re making creating a beautifully simple, intuitive Google experience across all devices”, in a final statement.

He later joined a conference call with analysts and said he was sorry for what he called the “scramble” of the early earnings release.