Google's latest earnings report is a reminder of the company's dependence on ad revenues.
Google's latest earnings report, released on Jan. 29, is yet another reminder of just how heavily dependent the company remains on its core search-related advertising business despite all its recent moves into new markets.
For the final quarter of 2014, Google reported
net income of $4.76 billion on revenue of $18.1 billion, compared with a $3.38 billion profit on revenue of $16.9 billion in Q4 2013.
Revenue from people paying for clicks on advertisements served on Google's Websites, mobile devices and sites belonging to its network partners accounted for $16.15 billion, or nearly 90 percent of its business last quarter. All of Google's other businesses combined contributed a total of $1.95 billon in revenue, or barely 11 percent of the total.
For 2014 as a whole, Google made a shade over $66 billion in revenue, of which a whopping $59 billion came from advertising. All other Google businesses—including Android, Chromebooks, Nexus, Google Play, Google Wallet and its enterprise technologies like Google App Engine, Cloud Platform, BigQuery, cloud storage and infrastructure as a service—together accounted for under $8 billion. That number is about 40 percent higher than the year before but is still nowhere close to the amount of money that Google generates from advertisements.
In a conference call with financial analysts, Google Senior Vice President and Chief Financial Officer Patrick Pichette said the strengthening of the U.S. dollar had a "gross negative currency impact" on Google's revenues, especially with respect to non-advertising businesses like Google Play and its Nexus tablets.
Still, the disparity between Google's advertising business and its other businesses might explain the company's diversification spree. Over the last two or three years, Google has branched off into multiple directions with projects such as Google Glass
, autonomous cars
, gigabit Internet
and wireless services, and other projects.
Google has also put more effort into its enterprise technology and services businesses. In recent months, the company has made several moves—like announcing a partnership
with VMware, launching cloud-monitoring services and supporting Docker repositories on its cloud platform—as part of a bid to make its technologies more enterprise-friendly.
Such efforts may well pay off for the Internet giant in the long term, but as the most recent numbers show, none of these efforts has gained much market traction for the moment at least.
Overall though, Google's Q4 2014 numbers reflect growth in revenue, income and earnings per share both on a quarter-over-quarter basis and from an annual standpoint. Even so, the numbers were slightly below Wall Street expectations for the quarter. Analysts had expected Google to report revenue of $18.46 billion and earnings of $7.11 per share compared with the $18.1 billion and $6.91 per share that it actually ended up reporting.
Pichette blamed "strong currency headwinds" and several other one-time factors
such as the company's decision to shelve Google Glass as reasons why performance came in lower than expected.
Thursday's announcement marked the fifth straight quarter that Google's financial performance has come in below market expectations, and many see it as a softening of the company's core search business. Google not is only earning less per click than it used to but also is having to spend more money to acquire those clicks.
Editor's Note: Patrick Pichette is Google senior vice president and chief financial officer. He was originally incorrectly identified as CEO.