Google's $8 Billion Run Rate In Mobile Revenue For 2012 Uses New Math

While much of Wall Street was having a fit yesterday over Google’s “disappointing” earnings, one number stood out as anomalous to some of the analysis -- that the search giant was claiming mobile revenue would likely hit $8 billion this year. That figure is up from mobile ad revenue of $2.5 billion last year. This is how CEO Larry Page described it in the conference call off of the earnings announcement:

“This time last year, I announced that our run-rate for mobile advertising hit $2.5 billion. That seemed like a pretty big number even for Google. But now we have built up additional mobile revenue from users paying for content and apps in Google Play. Including these new sources grossed up, I can announce our new run-rate for mobile is now over $8 billion. That’s quite a business.”

The key detail here is “users paying for content.” In fact, this $8 billion figure now includes content sales revenue from the Google Play Store. CFO Patrick Pichette later clarified: “Last year, it included only our gross revenue from mobile ads, but this year, in this number we also added the gross revenue from the mobile sales of Google Play content. And finally, it also includes the consumer spending on the Play apps.”

So the actual growth from ad spend on mobile over last year is entirely unclear because Google is not breaking out content sales from ad sales.

Pichette responded to an analyst question later in the call to try to clarify further without stating any hard numbers. He explained that ads were “the vast majority of it” and then petered into an unclear distinction of how book and movie content revenue were booked on a “gross basis” while app revenue is booked on a net basis.

Which still doesn’t really answer the question of how much mobile revenue is advertising other than that it is a “vast majority.”

Many analysts blamed the increase in mobile queries with declining CPCs at the search giant. Mobile ads simply sell for less, and this is a problem that Google is trying to address by tying mobile ads to a cross-platform sales model. Chief Business Officer Nikesh Arora said that the Google sales teams are focusing on mobile and video in the same way they did on display years ago. “So we can really bring our customers’ mobile video, Search, Display as a cohesive solution,” he says. He cites the greater use of location-based ads that drive retail business as an important opportunity for Google. Page said a couple of times that too many analysts were thinking about mobile and desktop in the wrong way. He implied throughout that he and Google were seeing these businesses of a piece and interdependent as they encouraged clients to buy across screens. 

Both Page and Pichette warned against the easy assumption that declining CPCs are attributable mainly to mobile. “So again, that’s the reason why I kind of want to educate and tell and remind everybody that just all of these mix effects whether it would be mobile versus laptop versus desktop, but also emerging market versus developed markets and also our versus network,” said Pichette.

Transcript excerpts were taken from the Seeking Alpha rendering of the conference call.  

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