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Google generates $14bn in Q2 despite Motorola losses

Mobile ads still pose a problem for Google, but Android performs well.

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Google missed Wall Street's estimates as weakening prices for the Internet company's ads and losses from the Motorola business hit the bottom line.

Google's consolidated revenue, which includes Motorola was $14.11 billion in the second quarter, versus $11.81 billion year-on-year. However, analysts expected the web giant to hit $14.4 billion, according to Thomson Reuters.

Revenue for its core business rose 20 per cent to $13.11 billion.

Google CEO Larry Page said new businesses such as a streaming music subscription service were off to a strong start, and noted that more than 1.5 million mobile devices that are sold every day feature Google's Android software.

The company has also been investing heavily in hardware devices, notably in its loss-making Motorola division, which is soon expected to finally unveil a signature phone - the Moto X.

But Motorola's widening losses took a toll on Google's profit margins, adding further concerns on Wall Street.

Operating margins dipped to a lower-than-expected 28 per cent in the quarter from 33 percent a year earlier. Motorola, acquired by Google in 2012, racked up a loss of $218 million before items, more than four times the $49 million it lost a year earlier.

"Google outsourced the Motorola manufacturing and sold the home business, so I would have expected Motorola's margin to be higher," said Kerry Rice, an analyst at Needham & Co.

Google's business, like those of rivals Facebook and Yahoo has been under pressure as more consumers access its online services on mobile devices such as smartphones and tablets, where advertising rates are lower than on PCs.

Earlier this year, Google changed the way marketers run ad campaigns on Google, blurring the distinction between ads destined for PCs and mobile ads, in a move that some analysts believed could help bolster Google's overall ad prices.

That did not happen in the second quarter.

"We've got to assume that maybe Enhanced Campaigns is not going to provide the pricing boost that a lot of people were expecting," said JMP Securities analyst Ronald Josey, referring to a new ad policy program unveiled by Google in February.

The average price of Google's online ads slid a larger-than-expected 6 percent year-on-year in the second quarter, compared with the first quarter's 4 percent decrease.

One problem may be that consumers don't click on mobile ads as often as they do on desktop PCs, said BGC Partners analyst Colin Gillis.

"So even if you force advertisers to buy them, if the conversion rates drop, (advertisers are) going to pay less for clicks," he said. "The reality is that Enhanced Campaigns may serve to drag down overall click pricing."

Patrick Pichette, Google's finance chief, cited a variety of reasons for the decline in ad prices during a conference call with analysts on Thursday, including a growing portion of ads in international markets with lower rates, as well as the shift to mobile.

And he stressed that Google's overall volume of ads increased by 23 per cent, accelerating from the first quarter's 20 percent gain.

Excluding items, Google earned $9.56 per share, lower than the $10.78 expected by analysts.

Shares of Google, which had risen to all-time highs in recent weeks, slid 4 per cent to $872.80 in after-hours trading on Thursday, having earlier closed at $910.68 on the Nasdaq.

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