Declining ad revenue an alarm bell for Google: analysts
After Google shares dropped nearly 10 percent over the course of two days, wiping out more than 24 billion dollars from the company's value, analysts have started predicting whether the world's lead Internet search engine could be nearing an end soon.business Updated: Oct 22, 2012 15:05 IST
After Google shares dropped nearly 10 percent over the course of two days, wiping out more than 24 billion dollars from the company's value, analysts have started predicting whether the world's lead Internet search engine could be nearing an end soon.
"[Google] could disappear in five to eight years and disappear in the sense that Yahoo used to be the king of search. Now, for all intents and purposes, Yahoo has disappeared," the Daily Mail quoted Eric Jackson, the founder and managing member of Ironfire Capital, a technology-focused hedge fund, as saying.
According to the paper, the profit losses were driven by a decline in advertising revenue, according to its earnings report. The amount that advertisers paid Google on a click-per-click basis fell 15 percent.
Advertising revenues are falling, which would continue to fall, for Internet companies because consumers are increasingly migrating to mobile applications and advertisers aren't willing to pay as much for a mobile ad, the paper said.
"I keep saying Facebook isn't the only one that has a mobile issue-Google does, too. If you are an investor in Facebook, mobile is priced into earnings. I don't think mobile in Google is priced in," Colin Gillis, an analyst for Boston Consulting Group said.
The main reason for Google's fall in profits is its 12.5 billion dollars purchase of Motorola, the struggling cellphone manufacturer, the division that lost more than 500 million dollars over the quarter, prompting aggressive cost-cutting measures, the paper said.
However, the web giant is also suffering in its core business, search-related advertising, as the income received for every ad clicked on fell by 15 per cent in just three months, it added.