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Originally published January 30, 2014 at 6:25 PM | Page modified January 30, 2014 at 6:29 PM

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Google profit falls short of estimates on slumping ad prices

While Google is the Web’s biggest search provider, it’s grappling with lower ad prices on smartphones compared with desktop computers.

Bloomberg News

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Google reported fourth-quarter profit that fell short of estimates as a drop in advertising prices dragged results.

Profit excluding certain items was $12.01 a share, the company said in a statement Thursday, missing analysts’ average projection of $12.25. Net income rose 17 percent to $3.38 billion. Google’s shares bounced between gains and losses in after-hours trading as the company also reported sales that beat analysts’ projections.

While Google is the Web’s biggest search provider, it’s grappling with lower ad prices on smartphones compared with desktop computers.

Even though consumers are spending more time on wireless devices, it’s not enough to make up for the loss of sales from more expensive promotions. The average price of ads declined 11 percent during the quarter, Google said.

“Expenses are rising faster than revenue, and for a company their size that’s a problem,” said Colin Gillis, an analyst at BGC Partners in New York who rates the stock a hold. “The fact that click pricing is declining so much means they still have work to do on mobile.”

Google, based in Mountain View, Calif., fell in extended trading. The shares advanced 2.6 percent to close at $1,135.39 in New York. The stock climbed 58 percent in 2013, compared with a 30 percent gain in the Standard & Poor’s 500 Index.

Revenue, excluding sales passed on to partner sites, rose 11 percent to $13.6 billion, topping the average analyst projection for $13.4 billion. Operating expenses, excluding the cost of revenues, rose 14 percent to $5.5 billion.

Motorola deal

The report comes a day after Google unveiled the sale of its money-losing Motorola handset business to Lenovo Group for $2.91 billion. The search provider had bought the company for $12.4 billion in 2012, pushing it into direct competition with hardware partners such as Samsung Electronics that use Google’s Android smartphone software.

Motorola again weighed on results during the fourth quarter. The unit’s revenue fell 18 percent to $1.24 billion.

While the search provider may be selling Motorola, it’s continuing to invest. Google earlier this month said it was spending $3.2 billion in cash to buy Nest Labs, the digital thermostat-maker led by former Apple executive Tony Fadell. Google, which had $58.7 billion in cash at the end of last quarter, said earlier this week it’s buying artificial-intelligence company DeepMind Technologies.

Advertising prices

Within Google’s core business, prices for ads fell 11 percent in the fourth quarter, compared with a decline of 8 percent in the previous period, At the same time, the volume of clicks on ads jumped 31 percent compared with a gain of 26 percent in the earlier period.

“Advertisers aren’t as willing to pay as much for advertising across a mobile format,” said Scott Kessler, an analyst at S&P Capital IQ in New York. “We’ve seen the pricing continuing to decline.”

Google has been upgrading its sales features. Last year, it introduced an advertising service called enhanced campaigns, encouraging marketers to funnel more of their spending to wireless devices.

The company also has been pushing retail customers to spend more on product listing ads, which enable them to use more information in promotions, including pictures.

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