Despite growing revenues by nearly 15% again last quarter, and nearly 20% beyond its 2013 results, Google (GOOG +0.27%) (GOOGL +0.20%) investors reacted a bit tentatively following its recent earnings announcement. The wariness hasn't prevented Google's stock price from rising about 6% since the "so-so" earnings news, but it's meandered a bit as of late.
Many of the same concerns heading into Google's most recent earnings news remain. But Google hasn't become a $370 billion market capitalization behemoth by sitting idly by while "upstarts" like Facebook (FB 0.55%) eat away at its core digital advertising business. With that in mind, there are a few areas of emphasis Google management intends to address.
Still the king
There's a reason Internet users "Google" something rather than "Bing" it. That said, there have been questions lately of just how entrenched Google search is. The concerns began when Yahoo! (NASDAQ: YHOO) decided to oust Google as its default on Firefox browsers late last year, which was then followed by news that Google's U.S. search share dropped to 75%, from 79%.
Then came rumors that Apple (AAPL +3.26%) may drop Google as the default search on its Safari browser. Before search concerns get out of hand, there are a couple of things to note. One, Yahoo!'s decision likely had an impact on U.S. search, true, but most pundits consider it a short-term blip rather than a long-term problem. Second, even if the deal with Apple's Safari isn't renewed, it's not as if iFans will suddenly forget that Google offers search. Add in Google's dominant global Android OS market share, all of which include Google as the default, and search will be fine.
Mobile and cost-per-click
The primary issue for Google investors is its steadily declining Cost-Per-Click (CPC) rates. In what has become a disturbing trend, CPC rates on Google sites dropped 8% last quarter, compared to a year ago. The drops are due in large part to advertiser's unwillingness to pay as much for mobile spots. Of course, Google revenues continue to improve because the volume of Paid Clicks is rising: up 14% last quarter compared to 2013, and 11% sequentially.
Making matters worse, Google is losing mobile ad market share to Facebook. Facebook's concerted mobile ad efforts are paying off -- big time. In Q4, nearly 70% of Facebook's advertising sales were from mobile. Google remains the dominant mobile ad player by volume, and it's taking steps to stay on top. Developing better tools for its marketing partners to measure results and utilizing its user data to better target ads will help stem the tide.
Who needs cable or a wireless carrier?
The buzz surrounding Google's lightning-fast Internet service Fiber grew again recently, after news spread it was coming to more cities around the country. The problem, in terms of Fiber becoming a legitimate, widespread, revenue-enhancing unit, is the time and expense required to install. However, that could soon change.
A primary issue surrounding net neutrality is treating all Internet providers -- and users -- equally, ensuring there isn't any favoritism. Assuming current providers don't win the day, all of the infrastructure currently used by cable and telecoms like telephone wires and poles would be made available to Google, with cheap and quick Fiber installation to follow.
Along with Fiber potentially kicking cable companies to the curb, it appears the longtime rumors of Google entering the wireless business are about to come true. And the potential is enormous. One industry insider suggests Google could generate $1 billion in sales -- not including any mark-up -- in just three years by joining the wireless provider ranks.
Gone, but not forgotten
Despite serious questions as to whether or not Google's failed Glass initiative was ever going to find anything more than a small, niche market, it appears Glass isn't dead. After appointing industry all-star Tony Fadell -- former Apple guru and developer of the Nest smart thermostat -- to head up its Glass development efforts last month, it became obvious Google still thinks there's life in wearables.
For investors, Google would be wise to keep Glass on the shelf, where it belongs, or certainly not spend much in the way of resources on it, and focus instead on shoring up its search and CPC rates, and diving head-first into Fiber and wireless services, because those are the areas that can, and likely will, drive top- and bottom-line results. And Glass aside, that's just what Google plans to do.
