Live-Blogging Google Earnings Call

Earnings calls aren't usually a thrill a minute, but Google's third-quarter call this afternoon could offer some real drama. Watch this post for updates as they happen on the call.

Earnings calls aren’t usually a thrill a minute, but Google’s third-quarter call this afternoon could offer some real drama.

CEO Larry Page has been markedly absent for several months, claiming that he’d lost his voice. He re-emerged publicly recently, and will likely lead the earnings call today.

The financial numbers leaked earlier today, causing stocks to plummet. What will the company’s response be?

In the press release, the company emphasizes the positive in its numbers.

“We had a strong quarter. Revenue was up 45 percent year-on-year, and, at just fourteen years old, we cleared our first $14 billion revenue quarter,” said Page said in his statement.

But there are some notable omissions in Page’s take. First, Google’s gross revenue — or intake, before any spending — is up because Google began to claim Motorola revenues last quarter. Secondly, revenue is great, but profit — revenue minus spending — is really what matters, and profit in the third quarter of 2012 was just $2.18 billion, compared to $2.73 billion in the third quarter of 2011.

That’s the background. Watch this post for updates as they happen on the call — assuming the bandwidth isn’t too jammed to let us in.

1:33: Larry Page is on. His voice is weak.

“I’m sorry for the scramble earlier today. We had a strong quarter. I’m really happy with our business.”

He gives an overview: Mobile monetization is already a significant fraction as compared to desktop. [translate: it’s way smaller, but it’s growing.] Users changing from one screen to another is an “enormous opportunity.”

“Today there are over half a billion Android devices, with 1.3 million more being activated everyday.”

Last year $2.5 billion run rate from mobile advertising. Today, the run rate is now over $8 billion.

1:37 As screens multiply it’s more important than ever that we converge our services. Users want one simple, beautiful Google experience. Technology should do the hard work. Screen independence is at the core of our strategy. When you’re using Chrome, switching devices is truly painless.

1:39 In advertising “campaign experience,” mobile opportunities often get missed.

1:41 Page talks up the knowledge graph. There’s much more that we can do to get you the right information at just the right time. You might have an important event but traffic is bad and you need to leave early. Google Now which we launched on Android in June gives you all that information and more.

1:42 Introduces Patrick Pichette, CFO
Pichette gives his overview: Overall we’re very pleased with the growth this quarter, despite currency fluctuations. U.S. growth continues to be strong.

More detail on $8 billion annual run rate on mobile: Last year’s number included only gross revenue from mobile ads, now it includes revenue from Play ads and consumer spending on Play apps.

1:43 Nexus 7 sales drove “other revenue” category up. Some of our existing [mobile] ads have better monetization than desktop today.

Motorola: Our team has made a lot of changes. That said, we’re just at the beginning of the Motorola/Google story. We should expect numbers [related to Motorola] to be very variable.

Paid click growth up 6 percent. Aggregate CPC down 15 percent, but remember that currency headwinds also had a significant effect.

1:45 U.S., UK, Japan: had robust growth. Hurt by economic woes in Europe. Revenue from US up 23 percent. Non-U.S. revenue accounted for 42 percent of total.

Motorola had an operating loss in Q3.

1:48 Headcount went down by about 1,000. Google added about 1,800. [That means Motorola dropped 2,800.]

Notes sunset of Google TV ads in Q3.

1:50 Pichette introduces Nikesh Arora, chief business officer

Key trends: rise of multi-screen consumer. In long run, screens will continue to diverge, but our advertising opportunities will converge.

Will “develop advertising that can take advantage of the fact that consumers use this many screens.” Example: T-Mobile ads for consumers near their stores.

1:52 Second trend: ability to deliver more precise answers to consumers. Google Now and Knowledge Graph.

As of yesterday, Google Shopping completed its transition to a fully paid experience.

We’re going to reduce the number of steps from search to transaction.

1:54 Third trend: something about better syncing advertising campaigns.

Working on creating more video inventory with YouTube. YouTube has 2.4 times more video advertisers than the average television network.

Google uses YouTube to anchor, distribute and syndicate content.

Enterprise products: Use continues to grow. With recent launch of Google+ for enterprise, companies are starting to use Google+ and Hangouts to get things done.

1:57 YouTube broke its own record of concurrent views with Baumgartner’s leap.

1:58 Arora opens up for question and answer.

Question: Why did marketing expenses go up so much?

Answer (Pichette): What you see is the impact of support [advertising] for the Nexus 7.

Question: Why was Shopping converted to pay-to-play?

Answer (Larry): We’re just really excited about providing a better experience for our customers. When you search for something, you should get a well organized set of product listings and ways to buy it, and our ability to do that on paid listings is helping us provide a better user experience. We just launched that yesterday and we’ve still got a ways to go. We’re really looking to provide answers for people. We want to do the same thing with our advertising, to make sure that we get you as a user the right answer.

Question: Mobile searches are strong. What’s happening with desktop searches?

Answer (Larry): We’re starting to live in a new reality, where the ubiquity of the screens helps users move from intent to action more seamlessly. This creates a huge opportunity for advertisers. I alluded to changes that we’ll make to our ad system to improve experience for advetisers and the users. We’ve seen tremendous growth in Android, and obviously we have tremendous influence. We can notify you of commercial experiences as well. [He’s talking about notifications that are ads.] … We’re uniquely positioned to get through that transition and to really profit from it.

[This is really the key issue behind the stock tank earlier.]

Question: If open-graph begins to dominant, will Google be left out given protocols it uses for search?
Answer (Larry): We’ve made a huge investment in Knowledge Graph. That’s a major effort for us, and we’d obviously love to have other people help us with that [by developing/using protocols].

(Larry): We’ve had Google TV for some time, it’s great to have a real browser on your TV, and YouTube is integrated on many, many consoles. We’re obviously working hard to get distribution for YouTube and Chrome on many television screens.

Question: Sorry to harp on the CPC question. I think everybody assumes the bulk of the “down 8 percent” figure is mobile, but what are the other drivers?

Answer (Nikesh): On the CPC trends, nothing has changed. I think people tend to assume it’s automatically mobile. vs. network, ad quality, emerging vs. developed markets — all these mix effects are at play in the CPC. If we start giving all the breakdowns, it’s just endless. CPC is going down, but paid click rate is going up, so the fact that there’s not as much CPC is not as big a deal.

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