SAN FRANCISCO -- Google views the computing shift to smartphones and tablets as a golden opportunity, but the Internet search leader's second-quarter performance served as an unsettling reminder that it also poses a nagging financial challenge.
The report, released Thursday, showed Google's average ad rate fell from the previous year for the seventh consecutive quarter. In an unexpected turn, the decline deepened for the first time in a year.
The average ad rate, or "cost per click," fell by six per cent during the three months ending in June. The magnitude of the declines had eased in each of the previous three quarters, raising hopes the worst was over. Instead, things deteriorated from the four per cent decline in ad rates during the first three months of the year.
Both earnings and revenue fell below forecasts, scaring off some investors. Shares fell $40.79, or 4.5 per cent, to $869.89 in extended trading after the results came out.
Google is still having trouble navigating a technological transition, driving more online activity on to smartphones and tablets. Those devices pose a financial challenge for Google because their smaller screen sizes fetch lower ad rates than desktop and laptop computers.
The company is in a far better position to prosper from mobile computing because it makes Android, the most widely used operating system on smartphones. Android typically features Google's search engine and other services, such as maps and Gmail, giving the company more opportunities to show ads.
Google is taking steps to persuade advertisers to pay higher prices to connect with consumers on mobile devices when they may be in a merchant's neighbourhood.
Google is also planning campaigns aimed at PCs. About six million advertisers have already switched to Google's new pricing system. All marketers will be forced to adopt the new approach, known as "enhanced campaigns," by the end of the month.
Google earned $3.2 billion, or $9.54 per share, up 16 per cent from $2.8 billion, or $8.42 per share, a year earlier. Revenue rose 19 per cent to $14.1 billion, from $11.8 billion.
After subtracting Google's ad commissions, revenue stood at $11.1 billion -- about $275 million below analyst projections.
-- The Associated Press