Google's average advertising prices drop 7%

Wall Street shrugged off a slight miss in Google's revenues and declining ad pricing for its first quarter, which the search company attributed to rapid growth at YouTube and a near-$1bn hit from currency fluctuations.

The average price of Google's advertising saw its biggest drop in a year, down 7 per cent across its own sites and its network of partners. But Google rebuffed analysts who have suggested that this decline was due to any struggle to make money from search ads on mobile.

Instead it pointed to the growth in video advertising on YouTube, which command a lower price than traditional search ads but are growing more rapidly.

"Excluding the impact of YouTube 'TrueView' ads, growth in site clicks would be lower but still positive and cost per click would be growing year-over-year," said Google's outgoing finance chief, Patrick Pichette. "Viewership in YouTube videos are growing rapidly."

The implication was that even despite the shift in users' behaviour from desktop to mobile devices - which Google admitted was "dramatic" - search ad pricing is still increasing overall.

"We are experiencing real strength in mobile search," Mr Pichette said.

It had more than 1bn users of its Android mobile operating system and 400m people use its Chrome web browser app on smartphones, Google said.

At the same time, more television advertising budgets are moving from broadcast to online video sites such as YouTube, although Google declined to provide exact figures for its video site.

Google's overall revenues rose 12 per cent to $17.3bn in the first three months of the year, compared with analysts' expectations of around $17.5bn, but sales would have increased by a "healthy" 17 per cent without the effect of a strong dollar, which cost Google $795m in sales, Mr Pichette said.

Adjusting for certain items, Google said it earned $6.57 a share. Analysts on Wall Street had expected adjusted earnings of $6.63 a share. Net income grew by 4 per cent to $3.6bn.

"This quarter, Google turned in a strong performance, and this despite substantial currency headwinds," Mr Pichette said.

Google's shares were volatile in after-hours trading, but climbed as much as 4 per cent higher after its call with analysts began.

One reason for the share price rise, despite the results missing forecasts, may have been investors' relief that Google's costs did not balloon, as they did at rival Facebook in the same period.

Google's operating expenses grew 21 per cent to $6.5bn and total costs rose 13 per cent to $12.8bn, while Facebook's operating costs leapt 57 per cent, with overall costs up 80 per cent.

Both companies are investing heavily in infrastructure such as data centres, where Google warned spending would continue to be "significant" as it improved its servers' performance. The search company's capital spending rose 25 per cent to $2.9bn.

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