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Google stumbles in 2Q as slump in ad rates deepens

Published on NewsOK Modified: July 18, 2013 at 6:17 pm •  Published: July 18, 2013

Google is in a far better position to prosper from mobile computing because it makes Android, the most widely used operating system on smartphones. The software also is gaining traction on tablets challenging Apple's pace-setting iPad. Google is expected to unveil the next generation of its Nexus tablets running on Android next week.

Android typically features Google's search engine and other services, such as maps and Gmail, giving the Mountain View, Calif., company more opportunities to show ads.

Now, Google is taking steps to persuade advertisers to pay higher prices to connect with consumers on mobile devices at times when they appear to be mulling a purchase or may be in a merchant's neighborhood.

Google is trying to drive up prices more quickly by changing the way it sells ads to prod more marketers into buying spots on mobile devices at the same time they plan campaigns aimed at PCs. About 6 million advertisers have already switched to Google's new pricing system. All marketers will be forced to adopt the new approach, known as "enhanced campaigns," by the end of the month.

In Thursday's conference call, Page described the switch to enhanced campaigns as the biggest change that Google has ever made to an online advertising platform launched more than a decade ago.

"I think we're still in the very, very early stages of that," Page said. "We changed a tremendous amount for how our teams operate, how our advertisers operate, how everyone buys those ads, what the users see, and we've done it pretty well."

Wedbush Securities analyst Shyam Patil said he believes Google is headed in the right direction in mobile advertising, despite the second-quarter slip in price.

"They are going to come up with the right solution, although now I am not sure if it is going to happen this year," he said. Patil also said he expects Google's stock to rebound quickly because too many investors believe the company's remains among the best bets in technology.

Google earned $3.2 billion, or $9.54 per share, in the second quarter up 16 percent from $2.8 billion, or $8.42 per share, a year earlier.

If not for the costs of employee stock compensation and charges tied to Motorola, Google said it would have earned $9.56 per share. That missed the average target of $10.80 per share among analysts surveyed by FactSet.

Revenue rose 19 percent to $14.1 billion, from $11.8 billion.

After subtracting Google's ad commissions, revenue stood at $11.1 billion — about $275 million below analyst projections.