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Online Ad Spend Crosses $100 Billion

Posted on Monday, Jan 28th 2013

Online advertising crossed a milestone last year when worldwide digital ad spend crossed the $100 billion mark. According to eMarketer, online advertising grew 18% over the year to $102.83 billion. Online ad spending is projected to grow 15% this year to $118.40 million. eMarketer expects online advertising to be a $163 billion industry by 2016.

 

Google’s Financials

Growth in digital advertising is contributing to the strong performance of online search giant, Google (NASDAQ:GOOG). Google’s Q4 revenues grew 36% over the year to $14.42 billion, falling short of the Street’s target of $15.38 billion. EPS of $10.65 was, however, higher than the Street’s target of $10.56 for the quarter.

Advertising and other revenues grew 22% over the year to $12.9 billion driven by a 24% increase in paid clicks. Motorola Mobility generated $1.51 billion in revenues. Revenues from the U.S. contributed 46% of the quarter’s revenues and grew 20% over the year. Revenues from the U.K. grew 23% over the year and accounted for 10% of the quarter’s revenues. Other international markets saw growth of 24% over the year.

Google Enhances Search

Google has been investing in product development and continues to improve its search engine. As part of this initiative, it has developed the Knowledge Graph. Knowledge Graph is an advanced search service that providers users with research material not only on the topic they searched for, but on other related topics as well. For instance, a search on information for inventor Nikola Tesla would display results that included a basic biography, images, and details of his accomplishments, but it would also recommend information about other inventors. During the last quarter, Google launched Knowledge Graph in seven new languages, including Spanish, Japanese, and Russian. The move is part of Google’s mission to simplify search in all languages.

Google has also improved its voice search, and users can now tell Google what they are looking for to get results. The voice search feature is available as a feature in its mobile app and is available for the iPhone, BlackBerry, and Nokia S60 V3 phones. For Android phones, the voice search is part of the Google Play app.

Google recently launched Google Now, a service that aims to provide users with information even before they seek it. For instance, through Google Now, users will be able to proactively see their upcoming flight details, status, boarding passes, and even get driving directions along with information on other places to visit nearby.

Google’s Mobile Growth

Google’s recent results have quieted those who doubted its performance within the mobile space. Six of its apps were listed a part of Apple’s App Store Best Free Apps of 2012. Since Apple’s Maps flop, Google Maps for iOS was downloaded more than 10 million times in the first 48 hours of launch. And it is not just apps: Google seems to have hit it big with hardware development as well. Last quarter, Google launched Nexus 4 and Nexus 10 and also partnered with Samsung for the development and launch of Samsung Chromebook. All of these tablets have received very positive reviews from the market.

Analysts believe that both Samsung and Google will be able to take a bite out of Apple’s tablet market share. According to Pacific Crest Securities, tablet sales worldwide are projected to grow 61% over the year to 172 million units this year. Last year, iPad had a 62% market share, but that number is expected to slip to nearly 50%, with Samsung’s share rising from 11% in 2012 to 23% in 2013 and Google’s share growing from 4% to 9% during the same period.

But despite Google’s growth in the segment, concern remains regarding the Motorola Mobility acquisition. During the quarter, the business continued to suffer losses and reported an operating loss of $152 million. Google announced plans to sell off the company’s set-top division and retain solely the phone division. Motorola Mobility still has a product pipeline of 12 to 18 months, and Google and the market will want to see what new products can help Google to dominate the mobile space in the coming months.

Google’s Acquisitions

During the last quarter, Google made several small acquisitions. Last month, it spent $17 million to acquire storage firm BufferBox. Canada-based BufferBox offers storage lockers to customers so that they can receive online purchases when they are not able to receive the parcels in person. Some believe that the move may signal Google’s plans to step into e-commerce.

In November, Google acquired coupon targeting company Incentive Targeting for an undisclosed sum. Incentive Targeting’s solutions helps organizations develop targeted marketing and coupon programs for their customers. The acquisition is expected to help Google improve its offer of personalized deals and coupons through services like the Wallet.

Google’s stock is trading at $754.57 with a market capitalization of $248.13 billion. It touched a 52-week high of $774.38 in October 2012.

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