Google Q2 revenue analysis

Google reported lower than expected profitability in Q2 2013 as Motorola Mobile and a higher portion of mobile advertisements in the company’s advertising mix detracted from margins.

Growth from its core search business will continue to decelerate in 2H13 as advertisers refuse to pay the equivalent of PC ads for mobile ads, contributing to further revenue growth slowdown.

However, success in the hardware business will drive Android OS adoption and bolster the number of devices from which Google can garner ad revenue.

The company will continue to focus on investing in products that indirectly bolster advertising revenue, the primary source of Google’s total revenue. Boosting internet speeds with Google Fiber and growing the base of global Internet users will increase ad views and Google’s top line revenue.

Waze, Google’s fourth largest acquisition in the company’s history, will assist Google in improving its social mapping capabilities, including its Google+ and Google Maps platforms.

The move was beneficial to Google as it eliminated the potential for competitors to use Waze’s mobile mapping app to enhance their map services.

Though Waze turned a low profit and only reached about 30-40 million users for approximately 450 minutes per month, Google will easily integrate the service with its portfolio to generate a modest profit.

Investment in the upcoming Moto X phone is an example of Google pushing competitors to improve offerings that drive Google’s advertising revenue; much like the company is doing with its Google Fiber network build out against network operators.

The move will not threaten Apple or Samsung’s leadership positions as the vendor’s are well entrenched in the market. By driving better, faster, more affordable device development and Internet speeds, Google will benefit from more ad placements in front of a larger audience.

Google is slated to spend approximately $500 million on Moto X marketing, and minimize the amount of software and apps that carriers preload on the device to make the phone more competitive with Apple devices that do not support these preinstallations.

Google is positioning YouTube to better compete with traditional television content services by broadening its content scope. YouTube acquired a 7 percent stake (about $40-50 million) in music video site, Vevo, in July 2013, a move that will make YouTube a more formidable opponent for content providers as it comes in conjunction with the recently launched paid subscriptions for select channels. Google renewed its contract with Vevo in July 2013 as Vevo remains one of YouTube’s top partner sites, attracting 50.2 million unique viewers to YouTube in May 2013.

Eric Costa and Jessica Paterson at Technology Business Research
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