Updated from 8:15 a.m. to include analysis from eMarketer in the sixth and seventh paragraphs.
NEW YORK (TheStreet) –– Google (GOOG - Get Report) earnings will continue to be dependent on cost-per-click (CPC), and whether advertisers begin to understand the benefits of advertising on mobile devices sooner rather than later.
CPCs, a key advertising metric, remained flat in the first quarter, when Google reported non-GAAP earnings of $6.27 a share on $12.19 billion in revenue, excluding traffic acquisition costs (TAC). Though that may indicate the company's initiatives to bundle advertising buying on various platforms is working, CPCs still fell 9% year over year.
Paid clicks, which include clicks related to ads served on Google sites and the sites of its Network members, increased approximately 26% year-over-year, but fell 1% sequentially.
On the earnings call, Nikesh Arora, Google's Senior Vice President and Chief Business Officer noted CPCs will start to move higher as more advertisers begin to understand mobile devices. He noted that in the medium-to-long term, mobile ad pricing will be better than desktop because you know more about the user and the context of what they're doing and searching for. Additionally, Google is working to making its payment enabling system easier, which should cause CPCs to rise. However getting advertisers to focus on the mobile side as opposed to desktop is a much harder initiative, and will take some time.
For the second-quarter, earnings are expected to fall sequentially, though analysts are largely bullish on Google for the remainder of 2014. Analysts surveyed by Thomson Reuters expect Google to earn $6.26 per share on $15.62 billion in revenue, including TAC. For all of fiscal 2014, analysts expect the company to earn $26.80 a share on $66.04 billion in sales.
Google continues to dominate the digital ad spend market, making mobile ads that much prevalent for Google's future. According to research firm eMarketer, Google accounted for 31.9% of digital ad spending worldwide last year. Facebook (FB) was next, accounting for just 5.8% of ad spend of the $120.05 billion market. The research firm estimates that the market will increase to $140.15 billion in 2014.
By contrast, the mobile ad market is much smaller, at just $17.71 billion in 2013 according to eMarketer, but Google is the clear leader here as well, accounting for more than 50% of the market.
Google no longer has Motorola Mobility to drag down its results (the company sold it to Lenovo earlier this year), but it is increasingly getting involved in how devices that run its Android operating system look, which may be a key issue on the company's earnings call.
At Google's developer conference, Google I/O in June, the company showed off a new version of Android, dubbed Android L, which will have 64-bit compatibility, and will feature a new user interface named Material Design that will allow developers to make color, typography and grid changes across their apps. In addition, the company also announced Android L's ART performance, which will allow the operating system to support chipsets that use ARM Holdings' (ARMH) intellectual property, Intel's (INTC) -x86 chipsets, as well as chips from MIPS.
Google didn't limit Android discussion to just smartphones, touching on the company's operating system for wearable technology, Android Wear. In addition to talking about the operating system itself, Google showed off several smartwatches that use the company's operating system, LG's G Watch, Samsung Gear Live, and the Moto360.