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Latest earnings bode well for Google

News Analysis

(MoneyWatch) Although Google (GOOG) late Tuesday announced earnings that topped analyst expectations,  the most interesting revelations were in the details.

Notably, there was confusion over the search giant's Motorola Mobility acquisition and the divestiture of the Motorola unit that makes cable set-top TV boxes. For example, some noted that Google had pointed out a few days before the company's latest earnings report that it wasn't going to include numbers from the set-top box division because of the pending divestiture. Many analysts had not taken that into account, according to the company.

Some stock watchers, like Doug Anmuth from J.P. Morgan (JPM), did adjust their estimates, as Peter Kafka at tech blog AllThingsD pointed out. Anmuth's net revenue estimate for Google dropped from $12.37 billion to $11.42 billion. By that measure, Google's $12.9 billion in revenue for the quarter without the set-top box division was more than solid.

Another casualty in the data department was the full impact of advertising trends on the company. As has been happening for some time, Google's average cost per click for search ads dropped, this time by 6 percent. That's a problem for the company, as a continuing decline would squeeze revenue and profits. What has bolstered Google's results has been the continued growth in click rates -- 24 percent year over year and 9 percent over the previous quarter.

By contrast, Google has made progress in diversifying its revenue. Ad revenue is now 94 percent of total revenue, which is relatively low for the company, with handset sales and other growing business lines shifting the composition of sales. Ads are still overwhelmingly the lifeblood of the company, but increased diversification will be critical for the future if ad rates continue to slide.

Image courtesy of Flickr user Daniel Morris