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Google profit tops estimates on year-end advertising gains

Google Inc., owner of the world’s largest search engine, reported profit that topped analysts’ projections as advertisers boosted spending to reach consumers during an extended holiday shopping season.

Fourth-quarter profit, excluding certain items, rose to $10.65 a share, Google (Nasdaq: GOOG) said in a statement. Analysts had projected per-share earnings of $10.50, according to data compiled by Bloomberg.

Google gained after retailers poured money into online advertising and extended the gift-buying season. Total spending in the U.S. e-commerce industry jumped 14 percent during the last two months of 2012 as retailers began promoting Web deals earlier, according to ComScore Inc. That’s helping compensate as the company relies more on mobile advertising, which tends to be less lucrative than ads on traditional computers.

“People were probably expecting something more on the downside and results were pretty good,” said Benjamin Schachter, an analyst at Macquarie Securities USA Inc., who has a buy rating on the stock. “The transition to mobile is still a work in progress, but they are showing they can manage that process quite well.”

Shares of Google rose in late trading, after earlier slipping less than 1 percent to $702.87 at the close.

Rates for mobile ads can be about 55 percent less than for promotions ed on desktop machines, according to Covario Inc., an online marketing agency. Still, the decline in the average amount advertisers paid each time a user clicks on a promotion decreased 6 percent, following a 15 percent decline in the previous period. The total number of clicks advanced 24 percent, after a 33 percent increase in the third quarter.

Revenue, excluding sales passed on to partner sites, was $12.2 billion, compared with $12.4 billion projected by analysts.

Google acquired the unit as part of its $12.4 billion purchase of smartphone-maker Motorola Mobility Holdings last year. In August, Google said it would cut 4,000 Motorola jobs and close about a third of its 90 facilities. Arris Group Inc. (Nasdaq: ARRS) agreed to buy the Motorola Home unit for $2.35 billion in December.

With the cutbacks, Motorola now can focus on its handset business, which uses Google’s Android operating system to run the smartphones. Android, which is provided for free to manufacturers, has become a key part of the company’s push into mobile, giving Google access to user data around the world. Android snared 72 percent of the global smartphone market in the third quarter, according to Gartner Inc.

Facebook competition

The company also has built a large leadership position in search, its core business. Google grabbed 67 percent of the market in the U.S. in December, according to ComScore Inc. That compares to 16 percent for Microsoft Corp. (Nasdaq: MSFT) and 12 percent for Yahoo! Inc. (Nasdaq: YHOO).

Despite its lead, Google could come under pressure from Facebook Inc. (Nasdaq: FB), owner of the world’s largest social-networking service. Last week, Facebook announced a new search tool that lets users discover people, photos, places and interests on the service.

When fully rolled out, the feature could give Web users an incentive to use Google less. Facebook also has a partnership with Microsoft’s Bing search engine, which will deliver additional results from the Web when Graph Search doesn’t deliver clear answers to queries.

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