Google shares dipped around 3% in response to mixed financial results for the third quarter.
While the search giant reported a year-on-year increase in revenue of 20% to $16.52bn, the figure missed analysts' expectations and profits of $2.8bn were down 5% compared with same quarter in 2013.
Investors were discouraged by another decline in the average amount paid by advertisers when a user clicks on an ad, which was down 2% compared with the same period the year before.
Despite investor disappointment, Google’s chief financial officer Patrick Pichette insisted the company had “another strong performance” this quarter.
“We continue to be excited about the growth in our advertising and emerging businesses,” he said.
Mobile ad rise
Like most other online companies, Google faces the challenge of convincing advertisers to pay as much for mobile ads as they do for desktop ads, as most users move to mobile access.
Because mobile ads are still at a lower price than desktop ads, Google's average cost-per-click continues to fall, even though the number of number of clicks is increasing.
However, Google holds a dominant position in mobile search, holding an 83% market share in the US in August 2014, according to StatCounter.
The total number of ads placed on Google sites, or paid clicks, increased by 17% in the third quarter, compared with a 25% growth in the second quarter.
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This indicates that growth in the company's key search business is slowing down, according to the International Business Times.
Investors had been hoping that YouTube's advertising business and revenue from apps sold through the Play Store would provide new sources of growth outside Google's traditional search and display ads business, according to The Verge.
While Google does not detail the revenue generated by YouTube, it did report 50% year-on-year growth in its "Other" revenue category, which includes the Play Store, hardware sales, and Google's enterprise services.
Google reported that it hired nearly 3,000 people in the past three months and invested heavily in building new datacentres.
These two costs, which are expected to continue, may have contributed to the lack of profit growth, said analysts.
Google's chief business officer, Omid Kordestani, told analysts the company has been very happy with the momentum they have seen in consumer adoption of its delivery service, Google Express.
The service recently expanded to a number of new cities, and Kordestani said they are now charging some commissions and service fees as they experiment with monetising the business.
Asked about payments, Kordestani said the main goal is to get mass adoption from merchants, so consumers can begin to use the technology already built into their phones.
Irish tax change
Pichette said it is too early to tell what the fallout will be from the changes to Ireland's tax laws, but said Google is committed to its presence in the country.
Earlier this week, Ireland announced that it plans to take steps to close the so-called “double Irish” tax loophole.
This allows companies to dodge tax by shifting revenues to subsidiaries in countries like Bermuda, where there is no corporation tax, according to Forbes.
In closing the loophole, Ireland will require all Irish-registered companies to be tax residents in Ireland in the next six years.
However, Irish finance minister Michael Noonan said the country had no plans to change its low 12.5% corporation tax rate.
UK tax law
Google is among the big US technology firms accused of dodging UK taxes by shifting revenues to Ireland, where the corporation tax rate is lower.
But Google’s executive chairman Eric Schmidt has consistently defended the company’s tax arrangements as being fully compliant with the law.
In June 2013, the UK led efforts to lobby the Organisation for Economic Co-operation and Development (OECD) for international tax rules to be brought up to date for the internet world.
At the time, Treasury minister David Gauke told MPs that HMRC is constrained by international tax rules.
Gauke said there were shortcomings in international tax guidelines, specifically in what constitutes a business taxable in the UK under "permanent establishment" rules.
The move followed a call by the Public Accounts Committee (PAC) for a full investigation of Google’s alleged tax evasion practices in the UK.
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