Google’s growth underwhelms as spending balloons

January 29, 2015, 10:23 PM UTC
Members Of Congress, Cindy McCain Discuss Child Sex Trafficking
WASHINGTON, DC - JANUARY 08: An employee walks through the lobby of Google's Washington headquarters, January 8, 2015 in Washington, DC. Google held a news conference with Right4Girls and the McCain Insitute to discuss ways to combat and prevent child sex trafficking. (Photo by Mark Wilson/Getty Images)
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Google’s quarterly revenue came in below Wall Street’s expectations as growth in ad clicks slowed while research and development costs continued to rise. Here are the key points from the online search giant’s fourth-quarter earnings release.

What you need to know: Google (GOOG) reported quarterly revenue of $18.1 billion, which fell short of analysts’ forecasted revenue of nearly $18.5 billion. The quarterly sales figures represented a 15% year-over-year increase for Google, but Wall Street was expecting more. Google also reported full-year revenue of $66 billion for 2014, which was up 19%.

Shifting currencies, including the strengthening U.S. dollar, took a toll on the company’s revenue. Google said in its earnings release that its revenue would have been $541 million higher had fourth-quarter foreign exchange rates remained unchanged from the previous quarter.

The company’s profits grew by more than 40% to $4.8 billion, or $7.01 per share. Google’s full-year profits increased almost 3%, to $20.6 billion.

Still, Google’s shares dipped about 2% in after-hours trading on earnings that fell short of Wall Street’s expectations. The company’s stock has fallen off by 9% over the past year as investors reacted to high R&D spending on programs and products that have yet to yield big returns.

The big number: As usual, Google saw the bulk of its revenue come from ad sales, which brought in $16.2 billion in revenue, up from $14.1 billion a year earlier.

However, Google has seen declines in its paid-click growth in recent quarters and that trend seems to be continuing. The company said Thursday that aggregate paid clicks rose 14% year-over-year, but only 11% over the third quarter of 2014. Paid clicks in the third quarter were up 17% over the same period in 2013.

Meanwhile, the cost-per-click for ads on both Google sites and the sites of members of the Google network dropped by 3% from the previous quarter and was also down 3% year-over-year as the impact of lower-priced mobile ads took their toll. The cost-per-click for Google sites alone was down 8%.

What you might have missed: Google’s costs and expenses ballooned by 22%, to $13.7 billion. Leading the way was a 46% jump in research and development costs, which grew to $2.8 billion. The company’s R&D spending has frustrated investors in the past as Google has poured billions of dollars into high-profile Google X projects such as Google Glass, self-driving cars and balloons that deliver Internet service. Those projects may cause a stir in the media but they are far from adding to the company’s profits.

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