Even as Google unveils stellar earnings, some analysts call for business cost reductions

on Wednesday, October 19, 2011

Even as Google unveils stellar earnings, some analysts call for business cost reductions  Google is one of the most successful companies in the world and though the bread-and-butter of its business model is its exceedingly lucrative search advertising division, the technology giant has increasingly moved to succeed in the mobile sphere, sidestepping investor demands that it cut business costs.

The Mountain View, California-based company reported its third quarterly earnings last week, surprisingly investors by blowing projections out of the water. Google, which is once again under the watchful eye of cofounder Larry Page, said revenue in its latest fiscal quarter hit $9.72 billion, representing a 33 percent jump from the same period in 2010.

Moreover, net income in the quarter registered $2.73 billion, climbing from $2.17 billion in the third quarter of 2010. The earnings report helped to allay investor and analyst concerns over the company's spend management practices, but some worries remain as to whether the search giant can continue to pull in record-setting revenue as more consumers use mobile search.

Google makes money every time a user clicks on an ad, but mobile phone users are less likely to click on advertisements. Google still derives a significant amount of its earnings from web-based searches and many analysts posit the company will not be able to sustain its stellar growth unless it harnesses the rapidly growing sector.

Nevertheless, Google has endeavored to expand its various business operations, announcing in August it planned to acquire Motorola Mobility for $12.5 billion. Like many large businesses, Google has record levels of cash on hand, but its decision to move beyond the smartphone operating system market – its Android is the most popular such system in the world – and into the production of phones was met with skepticism by some.

With its massive market capitalization, impressive earnings and dominant business model, Google has largely been able to avoid answering questions regarding its future growth plans. The company is increasingly courting smartphone users, but its Android system remains open source, and Google does not charge companies like Samsung to run it on their smartphone models.

Google does, however, make money through advertising revenue tied to Android. What's more, the Android App Store is a moneymaker for the world's biggest search engine.

However, lingering doubts remain as to whether Google can continue to dominate competition as it does now. The company has aggressively moved to hire workers as it seeks to expand at a torrid rate, but it has drawn the ire of some investors and analysts. Such critics assert the company is failing to achieve business cost reductions and are concerned about the company's bloated budget sheet.

For its part, Google contends it is simply investing a significant amount of money now to ensure it remains a dominant market force. Companies like Apple have been loath to spend the billions of dollars they are sitting on, but since Page resumed his role as CEO in January he has bet on a number of businesses and ideas he reckons could propel future revenue growth.

"That said, we must never lose sight of the fact that today’s revenues and growth serve as the engine that funds all of our future innovation," Page said in remarks to investors about the company's third quarter results. "People are a crucial part of Google’s long term success because great companies are no greater than the efforts and ingenuity of their employees."


 

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