Google’s financial performance faltered in the second quarter as a downturn in the Internet search leader’s ad prices took an unexpected turn for the worse.

The results announced Thursday show Google is still having trouble navigating a technological transition driving more online activity on to smartphones and tablets. Those devices pose a financial challenge for Google because their smaller screen sizes fetch lower ad rates than the marketing pitches made on traditional desktop and laptop computers.

Google’s stock shed $44.66, or nearly 5 percent, to $866.02 in extended trading after the results came out. Google’s average ad rate fell by 6 percent from the same time last year during the three months ending in June. It marks the seventh consecutive quarter that Google’s average ad price, or cost per click, has fallen from the previous year.

While the company has been adding tools for customers to reach mobile Web surfers, such as ads tied to searches and YouTube videos, those efforts are still gaining steam.–

“The challenge is for Google to reignite revenue growth as their existing businesses start to mature,” Colin Gillis, an analyst at BGC Partners LP in New York told Bloomberg News. “The core business is slowing down.”

The magnitude of the declines had eased in each of the previous three quarters, raising hopes that the worse was over. Instead, things deteriorated from the 4 percent decline in ad rates posted during the first three months of the year.

The erosion contributed to results that fell below analyst forecasts.
Google Inc. earned $3.2 billion, or $9.54 per share, up 16 percent from $2.8 billion, or $8.42 per share, a year earlier.

If not for the costs of employee stock compensation, Google said it would have earned $9.56 per share. That missed the average target of $10.80 per share among analysts surveyed by FactSet.
Revenue rose 19 percent to $14.1 billion.

After subtracting Google’s ad commissions, revenue stood at $11.1 billion — about $275 million below analyst projections.

Targeting Mobile

In February, Google unveiled new mobile-advertising products that push customers to buy more marketing messages for wireless devices. The features, which had been optional, will become mandatory later this month, helping advertisers target mobile users based on location or at different times of day.

The new system is “one of the biggest changes to its ad system since company inception, and should simplify the ability for marketers to acquire customers across multiple screens,” Ross Sandler, an analyst at Deutsche Bank, wrote in a note earlier this month.

Google is also making moves to attract more users to its mobile services, which in turn is aimed at boosting advertising. Last month, the company announced the purchase of Waze, a mobile application that helps users find routes on interactive maps. Google paid about $1.1 billion for Waze, people with knowledge of the agreement said. That would be the fourth-largest deal for the company, according to data compiled by Bloomberg.

Google also has been improving and expanding its Android operating system for smartphones. The software commands more than 70 percent of the market, while Apple Inc., maker of the iPhone, has less than 20 percent, according to researcher IDC.

One Android partner is Motorola Mobility, which Google acquired last year for $12.4 billion. The business is slated to release a new phone called the Moto X this year under new Google leadership. The device will use two processors to conserve battery life and will include sensors to help it better understand what a user needs, Motorola Mobility Chief Executive Officer Dennis Woodside said in May.

(The Associated Press and Bloomberg News contributed to this report).