FORTUNE -- Simmer down, folks. Google is doing just fine.
Judging from media coverage this Wednesday following Google's (GOOG) first-quarter results, you'd be forgiven for thinking the world's largest Internet search provider is in hot water. Google reported first-quarter revenues of $15.4 billion, up from $12.95 billion the same period last year, while earnings came in at $3.45 billion, also up slightly from last year.
But those numbers fell short of Wall Street's targets, based in part on the ongoing decline of Google's revenue from online ads, which account for the lion's share of company earnings. (The average "cost per click," or CPC, for instance, declined 9% this quarter.) That, in turn, caused Google's share price to fluctuate and set the media buzzing with talk of "disappointing" financial results, and more proof that Google is experiencing "growing pains," or is experiencing a "slump."
The culprit behind lower ad prices? The rapid, tumultuous shift from desktop to mobile. According to New York-based digital marketing research firm eMarketer, the number of smartphone users worldwide will grow 22% to 1.75 billion this year, rising to 2.03 billion in 2015 and 2.28 billion the year after.
Businesses like Google that rely heavily on ad revenue already have desktop ads down to a science, but mobile advertising, which has cropped up in recent years, has remained tricky. They certainly see the potential in the rapidly growing mobile market, but haven't yet figured out the best way to use mobile to their advantage -- a reality Nikesh Arora, Google's chief business officer, acknowledged during Wednesday's earnings call.
Arora is bullish, arguing that mobile ad pricing will eventually surpass that of the desktop: "In the medium- to long-term, mobile pricing has to be better than desktop pricing," Arora said during the call, referring to mobile-unique tools, such as more accurate targeting of ads based on a user's location, thanks to GPS technology.
The reality for Google is that, despite a rocky transition, it more than any other company -- with the possible exception of Facebook (FB) -- stands to benefit from mobile advertising once everyone figures out the best way to engage with users on smaller screens. Besides, while Google's CPC pricing is suffering, so is everyone else's, and some are faring much worse. According to digital marketing company Ignition One, the average CPC for search advertising on mobile plunged 35% during the first quarter of this year, compared with Google's more modest 9% decline.
As for Wednesday's wavering share price? Chalk it up to antsy investors. Between the stock's rise and fall during regular trading hours and after the market closed Wednesday, Google shares actually ended up almost 1% for the day and not down, as some outlets had suggested.
The transition to mobile might give Google reason to further develop other revenue streams. For instance, the company's "other" revenue source -- a business segment that includes YouTube, Android, and Chrome -- may account for just over 10% of current revenues, but it also climbed 48% year over year to $1.55 billion. The shift could also spur the company to duck out of investments that aren't panning out, as Google did when it agreed this January to sell the Motorola smartphone unit to Lenovo for $2.91 million after purchasing it for over $12 billion less than two years prior.
But for the foreseeable future, Google's massive revenue driver will remain advertising.
Given Google's already dominant position in the space, "I think they have to stay the course when it comes to the mobile advertising," explained Andrew Frank, vice president at Gartner Research. And like Arora, Frank predicts today's lower mobile ad prices are a temporary deal: "They can only go up," he added.
Yahoo's quarterly revenues fail to impress, but Alibaba growth rides in as a dark horse.
FORTUNE -- Yahoo (YHOO) slightly edged out Wall Street expectations on Tuesday after it posted 2014 first-quarter earnings of 38 cents per share on revenue of $1.087 billion, a tiny increase from the same period a year ago.
Analysts were looking for earnings of 37 cents per share on revenue of $1.08 billion. Shares were up 6% in after-hours trading.
A big MOREChanelle Bessette - Apr 16, 2014 7:15 AM ET
New York's techies used to brag that they were the underdogs. That's changing.
FORTUNE -- Unlike those tech workers over in Silicon Valley who live in a Google-bussing, Glass-wearing, Playa-sharing comfort bubble of soft landings and superhero universities, New York startups are toughing it out in the real world. Or so the trope has gone.
New York, a distant No. 2 to Silicon Valley, has "grit and grime"; it's "real and raw," according to MOREErin Griffith - Apr 4, 2014 1:48 PM ET
Like Microsoft, Google, Yahoo and, it's likely, most other major webmail providers.
FORTUNE -- Microsoft (MSFT) is not the only company that reserves the right to break into its customers' e-mail accounts. According to The Guardian's Alex Hern -- who actually read the user agreements that most of us blindly accept -- Apple (AAPL), Google (GOOG) and Yahoo (YHOO) do as well.
The issue came to light last week when Alex Kibkalo, a Russian-born former Microsoft MOREPhilip Elmer-DeWitt - Mar 23, 2014 6:05 AM ET
The big orange circle is Google's Motorola. The big blue one is Facebook's WhatsApp.
FORTUNE -- I can't vouch for the accuracy of the data in this infographic, created by business insurance provider Simply Business and posted Friday on TechCrunch, but even if it's a little off it gives you a good feel for how Apple's (AAPL) relatively small, targeted acquisitions compare with such multibillion dollar deals as Google (GOOG) buying Motorola ($12.5 MOREPhilip Elmer-DeWitt - Mar 7, 2014 11:37 AM ET
The media wanted a Yahoo-Foursquare deal more than the companies did.
FORTUNE -- Over the weekend, Yahoo (YHOO) announced a data partnership with restaurant reviews site Yelp (YELP). The partnership "will incorporate Yelp's listings and reviews of local businesses into results on Yahoo's search engine," according to the Wall Street Journal.
The surprising part of this announcement is not that Yahoo partnered with Yelp; it's who Yahoo did not partner with: Foursquare. Speculation about a Foursquare MOREErin Griffith - Feb 10, 2014 5:38 PM ET
In the wake of a lackluster quarterly earnings report, the Yahoo CEO underscores that a turnaround would take years. Investors may not give her that much time.
FORTUNE -- After a string of ugly one-night stands, Wall Street found love with Yahoo (YHOO) CEO Marissa Mayer. The pair had a sweet honeymoon period: Yahoo's share price has more than doubled during her first 18 months as CEO.
But with the company's latest MOREErin Griffith - Jan 28, 2014 7:59 PM ET
Yahoo's chief executive was heavy on the spectacle at this year's Consumer Electronics Show, but it remains to be seen whether the fireworks will translate to revenues.
FORTUNE -- The history of Yahoo (YHOO) CEOs giving keynotes at the annual Consumer Electronics Show in Las Vegas is not exactly stellar.
There was 2010, when Carol Bartz canceled her appearance abruptly with little explanation.
There was 2008, when co-founder Jerry Yang opened with a MOREMiguel Helft, senior writer - Jan 8, 2014 11:04 AM ET
Veterans of the first generation of web startups have not only survived, they continue to be big brands with 11-or 12-digit market caps.
By Kevin Kelleher, contributor
FORTUNE -- It's now been 15 years since 1999, a year that has since become synonymous with crazy Internet excess. The first Internet boom began several years earlier with an overhyped IPO and took a while to reach its febrile climax. Of course, it all MOREJan 3, 2014 5:00 AM ET
Yahoo admits that its Mail service was (and will be) unavailable for some people for 40 hours. Unacceptable? Sure. By how much, though?
FORTUNE -- Is it unacceptable for your e-mail to be inaccessible for one minute? How about 40? What about an hour? Forty hours?
That's about the time that Yahoo (YHOO) expects some of its Mail customers to be without access to the service after a hardware problem in one of MOREAndrew Nusca - Dec 11, 2013 5:29 PM ET
|Many low-wage workers not protected by minimum wage|
|HBO shows coming to Amazon ... not Netflix|
|Students cry foul over athletes unionizing|
|Postal workers to protest at Staples|
|Thanks to Obamacare, more workers may quit their jobs|