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Google beats profit expectations

Google search now favors mobile-friendly sites

Google’s second quarter performance is making Wall Street happy.

The Internet search giant reported $ 6.99 earnings per share, while analysts were expecting about $ 6.70. Google (GOOGL, Tech30) generated $ 17.7 billion in sales over the past three months, an 11% growth from last year. Wall Street was looking for about $ 17.8 billion to $ 18 billion, a 13% acceleration. Overall the company made $ 3.9 billion in profits.

While more people clicked on its ads in the second quarter than last year, businesses still shied away from spending. The amount of money advertisers paid for clicks dipped 11% — the ninth consecutive quarter of negative growth.

One of the biggest reasons for the decline has been mobile. Although many now surf the Web primarily through phones, they are still more likely to buy products online through desktops. Advertisers, therefore, tend to spend more to target shoppers on desktops than on mobile.

The other reason is Google’s video platform YouTube, where businesses are even less likely to spend money on ads because they say it doesn’t generate the kind of sales leads they want.

Google has made numerous improvements to both of these areas in the past few months. To help people make faster decisions to buy things on their phones, the company’s mobile search ads now show much more information than before.

Paid search results for a camera, for example, will provide product ratings, features, and inventory in nearby stores. This is a huge upgrade from what mobile search ads used to be, which was just some text and a link.

“We continue to close the gap between mobile and desktop search,” Ruth Porat, Google’s CFO, said during the earnings call.

But the biggest change to Google’s mobile search strategy came this week when it launched a buy button in its search ads. Clicking on a Google ad with a buy button will take users to a dedicated shopping site where they can complete a purchase in about two clicks. Transactions are processed through saved financial information stored within Google accounts.

“The buy button has the potential to change advertisers’ willingness to [spend] on mobile,” Mark Ballard, Merkle RKG’s director of research, told CNNMoney. “Search is probably the best performing type of digital ad because you’re capturing someone’s intent and interest at a specific time.”

However, the only way Google will see mass success from this ad format is if it can get enough people to save their credit information online, he added.

As for YouTube, Google is benefiting from an increase in the amount of time people spend watching videos on their phones. Compared to last year, video watch time on mobile increased two fold, according to Porat.

Google shares were up in after-hours trading. So far this year, the stock has been up about 10%, outperforming the S&P 500.

Analysts are expecting a lot from Google now that Porat is CFO. Porat, who joined earlier this year, was previously the CFO for Morgan Stanley. She will likely cut down on costs and expenses to help Google regain profit acceleration. Thursday was the first earnings call that Porat led in her new position.

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