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Google Q1 Earnings, Revenue Fall Short On Paid Ad Clicks

Google (GOOGL) reported weaker-than-expected first-quarter earnings and revenue late Wednesday as overseas growth failed to meet analyst expectations.

Per-share profit ex items rose 4.5% to $6.27, up from a revised $6 a year earlier. Analysts expected $6.39, according to Thomson Reuters.

Google on April 3 split its shares 2 for 1, so its year-earlier EPS has been halved. Google also retroactively removed the loss from Motorola Mobility, the handset maker that it plans to sell to Lenovo.

Revenue, excluding what Google pays other websites to carry ads, climbed 22% to $12.19 billion vs. views of $12.23 billion, according to FactSet Research.

The results "came in shy of consensus estimates on both the top and bottom lines but were solid nonetheless," wrote Cantor Fitzgerald analyst Youssef Squali in a research note.

Google, under both the GOOGL and GOOG (GOOG) tickers, slid about 3% in late trading. The slide erased a regular session gain of nearly 3%.

About 57% of Google's total revenue originated outside the U.S., up from 56% in Q4 and 55% in each of the prior two quarters, illustrating the growing importance of overseas sales, says FBN Securities analyst Shebly Seyrafi.

But revenue from outside the U.S. and U.K. climbed only 25%, slower growth than the 30% forecast by FBN.

U.K. sales amounted for 10% of revenue, down from 11% a year earlier. Heavy floods in England this year hurt Internet use in early 2014.

Google since mid-2011 has focused on building mobile-ad technology, in part to increase revenue from users in emerging countries where smartphones are used more widely than traditional desktops.

But worldwide paid clicks on ads grew just 26% in Q1, down from 31% growth in the three months prior. Analysts expected 29% growth, says Seyrafi.

Advertisers still aren't willing to pay as much for a click on a mobile ad. Google's overall cost-per-click, or CPC, rate slipped 9% from a year earlier, although it remained unchanged from Q4.

"I believe, in the medium to near term, mobile pricing has to be better than desktop," Chief Business Officer Nikesh Arora told analysts on the post-earnings conference call.

Google is "gaining positive momentum" from those mobile-ad products, wrote Baird equity-research analyst Colin Sebastian on Wednesday.

Yahoo (YHOO) shares rose 6% on Wednesday after the Internet giant reported its first revenue gain in five quarters, though growth was still anemic.

Google is selling handset maker Motorola, but it's still rushing headlong into hardware such as smartwatches with new Android Wear software.

Google on Tuesday announced plans for a customizable smartphone called Project Ara. Those phones are expected to hit the market at about $50 in January 2015. The phone will feature interchangeable, magnet-attached modules for camera lenses, memory or other features, which will be sold separately.

Google also on Tuesday held a one-day public sale for its experimental eyeglass-mounted computer, Glass. Google didn't specify how many Glasses were sold but announced in a blog post early Wednesday morning that all the available "Glass Explorer" spots had been filled.

The glasses were offered for $1,500 each. The white, or "cotton," model sold out in just a few hours.

For now, the products seem to be "one-offs," meaning that their future revenue potential remains cloudy, says Longdley Zephirin, an analyst at Zephirin Group in New York.

"The company really has not put up a foundation for them, so we don't know if they'll be there in the long term," Zephirin told IBD on Wednesday.