Google has gotten into the habit of missing analysts' earnings targets, frustrating investors who believe the online search leader would be more profitable it wasn't pouring so much money into far-flung projects such as Internet-connected eyewear and driverless cars.
The latest letdown came Thursday with the release of Google's fourth-quarter earnings report. The earnings were well below analysts' predictions, marking the fifth consecutive quarter that Google Inc. hasn't cleared a key hurdle for publicly held companies.
The Mountain View, California, company earned $4.8 billion, or $6.91 per share, a 41 percent increase from the same period in 2013. If not for certain expenses and gains, Google said it would have earned $6.88 per share. Analysts, on average, had forecast earnings of $7.12 per share, according to FactSet.
Google's revenue for the period covering the holiday shopping season rose 15 percent to $18.1 billion. After subtracting ad commissions, revenue stood at $14.5 billion — nearly $250 million below analysts' expectations.
Investors expressed their dismay as Google's stock sank $10.31, or 2 percent, to $502.92 in extended trading. Even before that sell-off, the shares had dropped by 8 percent from where they stood just 13 months ago.
The downturn has primarily been driven by two factors: Google's steadily rising expenses while the company's main digital advertising business is facing more challenges as a growing audience relies on smartphones instead of desktop and laptop computers to do searches and peruse digital content.
Ad prices have been sagging because marketers haven't been willing to pay as much to pitch consumers who are squinting at the smaller screens on smartphones, an issue that cropped up again during the final three months of last year. Google registered a 3 percent decline in the average price for the ads that appear alongside its search results and other online content, a measure known as "cost per click." It's the 13th consecutive quarter that Google's cost-per-click has fallen from the previous year.
The desktop-to-mobile transition also unleashed a flood of applications that make it easier for people to go directly to the digital content that they want, instead of searching on Google. People are also searching within apps once they're in them, relying on services such as Amazon to find products or Yelp to find restaurants.
That trend may help explain why the revenue-generating clicks on Google's ads have been growing at a slower rate. The volume of activity is important because Google bills advertisers when people click on a promotional link. Google's paid clicks during the fourth quarter rose 14 percent from the same time in 2013. That compared with increase of 17 percent increase in the third quarter and 25 percent in the second quarter.
Google could still be making more money if the company decided to add fewer workers to its payroll and rein in its spending on far-out technology. But CEO Larry Page believes Google needs to continue be taking risks and making big bets on ambitious ideas that he calls "moonshots" in an effort to open future moneymaking opportunities and perhaps make the world a better place.
Page, who is Google's controlling shareholder with fellow co-founder Sergey Brin, warned investors when Google went public in 2004 the company would continually invest for the long term instead of trying to make as money as possible from one quarter to next.
Google also has steadfastly refused to give any clue about its internal earnings projections, making it more difficult for analysts to make their own educated guesses.