Google's Q4 Shows A 'Happy Holiday Season' For E-Commerce, Ad Exchange

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Google Q4 2012Google's advertising business was "firing on all cylanders" during Q4 2012, in the words of SVP/Chief Business Officer Nikesh Arora, who pointed to healthy growth -- even by the search giant's standards and (some, if not all) analysts' expectations -- during the holiday shopping season. The company had just completed its shift from free product listings to paid a few weeks before Black Friday, and Google's performance showed once again that its dominance across display and search advertising is only being boosted by its deepening foray into e-commerce.  Read the earnings release.

And yet, though Google failed to reverse its recent string of cost-per-click declines (CPC was down 6%), display ads posted an annualized run rate of over $5 billion, which Arora attributed to the growth of the Google Ad Exchange and YouTube's skippable TrueView ads, which now make up 17% of the video site's marketing messages. He also pointed to higher mobile ad sales, which rose 12 times over 2011.

Giving a shout out to Google's publisher partners The Weather Company and Time Inc., Arora briefly touched on the growth of the DoubleClick For Publishers and Adx, which have been aiming for more lucrative reserved/guaranteed ad dollars and placements in the past year.

"Across search, display, YouTube and more, our top 25 advertisers are now spending over $150 million per year," Arora said during his presentation on the analysts call. "Our investments in mobile and shopping passed the holiday season with flying colors. Our vision is for search to understand exactly what you mean and give you want you want on all devices."

Arora pointed to higher search volumes and a greater proportion of queries with commercial intent across areas such as retail, computers and electronics during Black Friday and the increasingly significant Cyber Monday. Also, we launched a series of features to make online shopping more stress-free and more fun, like 360-degree toy image view and integrating retailers' promotions into our shopping product."

Among Google's Q4 highlights, revenues were up 36% compared to the previous year's results, and 8% gains over Q3 2012. Secondly, Google surpassed $50 billion in revenues for the first time last year – "not a bad achievement in just a decade and a half," as CEO Larry Page said in his prepared remarks.

Paid Click growth exceeded Jefferies & Co.'s expectations as the former segment grew a solid 24% year-over-year (Jefferies called for 23% gains). "We think Paid Click growth is the most important indicator of a healthy advertising ecosystem going forward, as a larger [percentage] of Google ads are monetized on a non-CPC basis," said Jefferies' analyst Brian Pitz in a research note following Google's earnings release.

For the most part, Arora and Page sought to highlight the emphasis on shopping and mobile, though the refrain "early stages" was repeated heavily.

Google now controls a 56.6% share of all US mobile ad revenues, eMarketer estimates, compared to the next highest competitor, Facebook, at 8.8%.

Most of Google's mobile ad revenues come from search, and eMarketer expects Google will maintain a 93.3% share of the overall $1.99 billion U.S. mobile search ad market. Spending on mobile search ads in the U.S. in total is expected to jump 55% to $3.6 billion next year-of which Google is expected to earn a 92.4% share.

"Mobile will increase offline transactions from online ads," Page told analysts during the Q&A session, when asked about efforts to bridge the two sides. "We’re very excited , but we’re in the early stages of making that work for users and consumer."

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