As Google (NASDAQ:GOOG) (NASDAQ:GOOGL) stock slowly works its way back to pre-earnings levels, investors appear to have accepted its "so-so" quarter. Consensus estimates were for $17.5 billion in revenue and $6.60 earnings per share on a non-GAAP (excluding one-time items) basis, and for Google simply meeting expectations isn't enough, let alone slightly under-performing as it did in 2015's Q1. Alas, Google generated $17.26 billion in sales and $6.57 per share non-GAAP earnings. The stock price drop that followed was a bit over-done, considering Q1 revenues were a 12% improvement over last year's and non-GAAP earnings jumped 50%.
Looking ahead, Google shared several strategic areas of focus to kick-start growth for the balance of 2015 and beyond.
For the love of video
There's a reason industry pundits and investors alike were giddy when Google's primary digital advertising competitor Facebook (NASDAQ:FB) finally introduced video ads across its site: they work, and marketers will pay top-dollar for the privilege. During Facebook's video testing phase, it was able to charge advertisers $1 million a day to partake in the "experiment." That boosts Google's competition, but it also proves that its YouTube service -- easily the most popular video site on the planet -- has the sky-high revenue potential pundits have long predicted.
Better still, Google management made it clear YouTube is growing, and is already making up a larger piece of its overall revenue pie. How much CFO Patrick Pichette wouldn't comment on, but he did say investors can expect YouTube's growth trend will continue as "more advertisers shift dollars to digital."
Focusing on mobile
One of the culprits for Google's jump in expenses last quarter -- operating expenses grew over $1.1 billion -- was continued efforts to enhance its mobile search engine, and it appears to be working. According to a recent study, Android-run mobile devices account for over half the world's mobile web usage. That's up from just 38% a year ago, and easily tops the list of OS mobile usage. A direct result of Google's revamped mobile tools? Probably not, but it does appear Google's efforts to enhance the mobile user experience are working.
Another sign mobile is on the right track was Q1's growth in Google's paid clicks. Many focus on its declining cost-per-click (CPC) rate, but there's more to Google's click story. Last quarter, the number of paid clicks on Google sites grew a whopping 23% and 13% on an aggregate basis. Again, the increase in Google's paid clicks isn't all mobile-related, but it certainly made an impact.
About those CPC rates
Management also wants investors to know those declining CPC rates really aren't as bad as they appear. The problem, suggests Pichette, is all those "skippable" ads on YouTube are watering down overall CPC rates.
Based on the number of CPC-related questions posed by analysts following Pichette "explanation," not to mention investors' sentiment based on the stock price decline, it's safe to say not everyone bought what the CFO was selling. Seems a bit of a stretch, after all -- but that's Pichette's story, and he's sticking to it.
Google Play is for real
One of the more impressive aspects of Google's Q1 that may have flown under the radar for some investors was its dramatic improvement in "other revenues." When asked, Pichette quickly pointed to the success of Google Play as the impetus for the unit's $1.75 billion in sales, equal to a 23% gain over last year.
Play has long been the most popular app download site, but that hadn't translated to significant revenues -- until now. The really good news is that management expects other revenues -- led by Google Play -- will continue to grow in the months and years to come.
A fond farewell
It was announced a couple of months ago in an open letter that Pichette was resigning to spend more time traveling with his wife, Tamar. His replacement, former Morgan Stanley CFO Ruth Porat, is widely hailed as a worthy successor, and considered one of the more powerful women on the Street.
As a result, Pichette made it clear he had hosted his final earnings call, and is ready to "grab his backpack" to begin traveling the world. When a key exec like Pichette leaves, it can be cause for concern. However, Porat has the confidence of the industry and investors, so Pichette's admirable decision to enjoy his "mid-life crisis full of bliss and beauty" was a fond farewell, indeed.