|
 | 
Apr-17-2008Has Economy Hurt Google Search Ads?(topic overview)
CONTENTS:
SOURCES
FIND OUT MORE ON THIS SUBJECT
Who to believe, we wonder, ahead of Google's Q1 2008 earnings announcement on Thursday. On the anniversary of the sinking of the Titanic, Silicon Alley Insider said its sneak peek at comScore's report on paid clicks showed a "violent deceleration" for the first quarter. Growth in March of only 2.7 percent, Q1 growth of 2 percent year over year, they aren't happy numbers. Citing Mark Mahaney of Citi, the post pointed to a couple of possible reasons for this relatively flat performance: Google's forceful efforts to make advertisers comply with AdWords quality guidelines, and a general decrease of commercial searches that would lead to ad clicks. [1] ComScore said Google's U.S. paid clicks grew 2.7% in March compared with the same month last year. That meant Google's U.S. paid clicks for the first quarter grew just 1.8% compared with the year-earlier period, a sharp deceleration from the company's 25% growth rate in fourth quarter and 48% growth in the third quarter. It now almost feels like a foot race between Google and comScore with the winner earning credibility.[2] Mountain View-based Google (NASDAQ: GOOG) saw U.S. paid clicks rise 2.7 percent in March compared with the same month last year, and clicks in the first quarter were up 1.8 percent compared with the year-ago quarter. Those figures show a decline from Google's fourth-quarter growth rate of 25 percent and its third-quarter growth rate of 48 percent.[3]
The numbers don't look promising. Google's U.S. paid click-throughs - to be sure, its bread and butter revenue-generator - may rise by just two percent in the first quarter, according to Henry Blodget at Silicon Alley Insider, citing proprietary ComScore data. That would compare to a 25 per cent quarterly growth rate a year ago for Google, and down from a 40 per cent quarterly growth rate in the fourth quarter of 2007.[4] Analysts expect earnings of $4.52 a share on sales of $3.61 billion, a top line growth rate of 42 percent over sales in 2007. Silicon Alley Insider's Henry Blodget said he believes the current consensus revenue estimates could be met with U.S. growth of 25 percent in Q1, down from 40 percent in Q4, which would allow for significant deceleration in the quarter. "This 25 percent growth estimate obviously assumes that Google has seen a strong increase in price-per-click: If it hasn't, and the Comscore data is accurate, U.S. revenue will miss by a mile and Google's overall revenue will come in well below consensus," Blodget wrote April 15.[5] According to analysts surveyed by Thomson Financial, Google is expected to report first-quarter revenue of $3.61 billion when certain payments to partners are factored out, a 6.5% increase from $3.39 billion on that basis in the fourth quarter. Google declined to comment on the comScore data or its earnings report. When it posted its fourth-quarter earnings on Jan. 31, Google CEO Eric Schmidt said the company hadn't seen any impact from macroeconomic softening. In public comments since then, Google executives have said it isn't clear yet whether those problems will hurt its business. Since going public in 2004, Google has sworn off giving any detailed public earnings guidance, which increases the difficulty of assessing any risks to its performance. That's a major reason investors turn to comScore's search-ad click data, despite analysts' warnings that the data haven't always predicted Google's results reliably in the past. "The comScore click data has been a huge focus for the investment community and probably has been one of the bigger influences on the stock this quarter," says John Aiken, managing director of Majestic Research in New York.[6]
ComScore also reported paid clicks falling overall, including at Sunnyvale-based Yahoo Inc. (NASDAQ: YHOO) and Redmond, Wash. -based Microsoft Corp. (NASDAQ: MSFT). Google is planning to report its first-quarter financials Thursday, and analysts expect, on average, earnings of $4.52 per share on revenue of $3.61 billion.[3] Analysts expect the software giant to report earnings of 44 cents per share on revenues of $14.5 billion for the quarter. Microsoft has also given Yahoo! a deadline of April 26 to come to the table and negotiate a deal or it will seek measures to replace its board and possibly lower its offer price.[7] Analysts expect the struggling Sunnyvale, Calif., Internet portal to post earnings of 90 cents per share on revenues of $1.3 billion. Microsoft is slated to report its third-quarter earnings a few days later on April 24.[7]
ANALYST TAKE: In a recent investor note, Stifel Nicolaus & Co. analyst George Askew kept "conservative" expectations for Google, saying he expects first-quarter adjusted earnings of $4.34 per share on revenue, excluding traffic acquisition costs of $3.42 billion.[8]
Google's paid click numbers are cause for grim speculation ahead of the company's first quarter earnings announcement. Google's search share increased a half percent in March compared to February, but that's not what has financial analysts flapping their gums a day before the search giant announces first quarter earnings.[5] Google's paid click rate for March grew 2.7 percent in March, a tally that was deemed "anemic" by analysts. Google's paid clicks have been the most overanalyzed metric of the first quarter, but we're about to find out whether they matter since the search giant reports earnings on Thursday.[9]
For the third straight month, the number of people clicking on Google ads didn't grow quite as quickly as it has in the past. At least, that's the word from market research outfit comScore. The question is whether this slowdown in paid click growth will significantly affect Google's first quarter earnings, due for an unveiling tomorrow afternoon. The world's largest search engine claims that the paid click dip is part of its master plan to improve the company's longterm well-being.[10] Following the latest comScore numbers, several analysts on Wednesday admitted that the slowdown in paid clicks could impact Google's earnings for the first quarter, which will be released Thursday afternoon. They mostly stuck by their bullish views on the company.[11]
For the third month in a row, ComScore data shows signs of weakness in Google's (GOOG) paid clicks, leaving investors to wonder about the company's upcoming first quarter earnings report, which is due after the close on Thursday.[12]
The research group said the number of times people searched on Google increased 31% in the first quarter, compared with the year ago period. Comscore said Google's U.S. search query market share increased 60 basis points from the previous month to 59.8%, while Yahoo Inc. (YHOO), Microsoft Corp. (MSFT) and Time Warner Inc.' s (TWX) AOL all saw their market shares slip fractionally. The data from Comscore, which was not released publicly but provided by Wall Street brokerages, was seen as welcome news for Google after a difficult month in which many financial analysts lowered their expectations for the search company's first quarter.[13] When combined with a 0.3pc fall in January and benign growth in February, the growth rate has slowed considerably. The new research left some analysts questioning whether Google will meets its earnings targets for the current year, with UBS's Ben Schachter saying that Google would have needed to begin charging advertisers more in order to meet estimates. Wall Street analyst-turned-blogger Henry Blodget noted that first-quarter estimates have already been cut significantly since what he refers to as "the first comScore bomb" in January, saying current estimates of 4.16 a share could be met with U.S. growth of 25pc in the first three months of the year. "This 25pc growth estimate obviously assumes that Google has seen a strong increase in price-per-click.[14]
Wall Street started worrying about Google's growth last quarter, when it missed analysts' earnings estimates by a penny, despite posting a 17% jump in total earnings for the quarter. In its fourth-quarter earnings call, Chief Executive Eric Schmidt said Google's earnings were hampered by improvements to its search engine aimed at weeding out junk ads that pop up alongside search results. He dismissed suggestions that the slowing economy was to blame for Google's lackluster results. Declining clicks and missed earnings have prompted many analysts to lower their first-quarter estimates by 12 cents a share on average.[7]
Is Google's blockbuster advertising machine sputtering? Wall Street will be looking for an answer from the Internet giant on Thursday when it reports first-quarter earnings. The number of clicks on ads hosted on Google's (nasdaq: GOOG - news - people ) site has been declining since January, leading many analysts to surmise that the sluggish economy is taking its toll on the company.[7] Google's first-quarter earnings report, scheduled for Thursday afternoon, just got a lot more interesting. Late Tuesday night, those Internet traffic trackers at ComScore put out some lousy news: growth in paid-search clicks in the United States is slowing down. In fairness to Google, it did better than its competitors, according to a JPMorgan report issued Wednesday morning. (ComScore's paid-click numbers are not typically issued directly to public. We hear about them when Wall Street analysts issue their own reports on the data.)[15]
According to comScore, via a bevy of Wall Street research reports, Google's paid clicks were 582 million in March, up 2.7 percent ( Techmeme ). For those keeping score at home, Google had paid click growth of 3.1 percent in February and a decline of 0.3 percent in January.[9] Google, whose Internet query market share was 59.8 percent in March, also posted only a 2.7 percent gain in paid clicks from March 2007 to March 2008, according to data issued by comScore April 15. Google made the bulk of its $16.7 billion in 2007 from paid clicks, which come from the links on its Web pages it services. Normally, a gain in paid clicks is viewed positively, but this is the third straight month comScore has signaled weak numbers in this area.[5] The numbers for March point to a paltry 2.7 percent growth in paid clicks, according to Silicon Alley Insider which was tipped about the comScore data a bit early.[16]
ComScore's numbers also show that Google's paid clicks for the first quarter grew just 1.8 percent from the year-ago period, a huge drop from the 25 percent paid click growth from the fourth quarter in 2007.[5] Even worse, is that for the entire first quarter, it looks like Google only saw an overall paid click growth of two percent year-over-year. Compare this to the last two quarters when the numbers were up 25 and 48 percent to the previous year, respectively. Some see this slowdown as an inherent problem in Google's business model. Other's see it as a problem with online advertising in general.[16]
Overall, U.S. paid click growth for the first quarter was just 2% year-over-year, compared to 25% in the fourth quarter of 2007 and 48% in the third quarter. Does this mean that Google bombed the quarter? Nobody really knows, as the company has acknowledged that it was tweaking its search advertising system to cut back on those clicks that weren't likely to convert for advertisers. In that case, the result would be much slower growth in paid clicks-but near-flat? That looks awful compared to near 50% growth six months ago.[17] Growth in one of Google's key money-making areas has slowed almost to a halt, calling into question its business model and the future direction of its business. Latest data from internet research house comScore shows that the level of U.S. visitors to the search engine "clicking through" to adverts carried by Google has slowed from a growth rate of 25pc in the fourth quarter of 2007 to just 1.8pc in the first quarter of this year.[14]
Mountain View, CA (AHN) - Google saw a 1.8 percent rise in search ad clicks for the first quarter of 2008, down from a 25 percent jump in ad clicks in the fourth quarter of 2007, an Internet market research firm said Tuesday.[18]
Analysts were divided about the reasons for, and the impact of, the deceleration in Google's paid clicks, with some suggesting economic weakness could cause Google to fall short of Wall Street's first-quarter estimates. Others argued that efforts by the company to trim the number of clicks - which should enable it to increase the amount it charges per click - would boost the company's long-term prospects. The uncertainty over Google's paid click prompted many Wall Street analysts to trim their first quarter estimates for the company.[13] Askew thinks Google's paid click growth slowed in the first quarter, but not at the same pace as third-party estimates indicate. He also believes growth in revenue per click has offset sluggish paid click growth.[8]
Still others see it as yet another sign that the overall economy is in the dumps. Once again we're forced to wonder if this is actually bad news at all. While paid click growth has ground to a halt, the price-per-click numbers on the ads have gone up, exactly as Google was expecting when they took measures such as shrinking the click areas on ads to ward off some errant clicks. ComScore'''s researchers note that they would not be surprised at all to see this trend continue into 2008 ''' paid clicks go down, but revenue remains steady or improves. While everyone will again undoubtedly start freaking out on Thursday if these numbers hold true, at least some people out there have been expecting these results each time perhaps it's time to listen to them.[16] Google's paid click growth has come to an halt? No surprise to me, as even they can not stop the market from reacting to their product: 1) Advertisers, who are being asked to pay more for their ads, complain about shrinking ROIs, to the degree that it does not make sense any longer to advertise with Google. Result: they stay away from the program and look elsewhere. 2) Arbitrage players, who contributed to Google's overwhelming success in the past, are partly responsible for this problem of shrinking ROIs, and are being (slowly) booted from the program. This cash is missing now in GOOGs pockets. Badly. 3) And Users! Why should people click more often? Why? If you run a quality content site, people will not click the ads (unless they are in "buying mood"), even less so in a recession; if you run an arbitrage site, people will click anyway to get away, even if this needs to be done by clicking an ad.[19]
"Google's stated strategy of improving the relevance of ads for users and return on investment for advertisers is driving slower paid clicks growth, we believe," said Askew, who rates the stock "Buy" with a $610 price target.[8]
Jeff Lindsay, Bernstein : "Google's current paid click deceleration is not unprecedented - a significant advertiser purge happened around June 2007. On that occasion paid click growth also went down by a similar amount, but the revenue per search went up by more than that decrease in Q307.[20]
Door No. 2 is what has people worried. This paid click concern has set up something I'm not sure has ever happened in Google's history as a public company: Expectations for the company's earnings report are low, says William Blair analyst Troy Mastin. He cited currency gains as one buffer along with international growth for Google.[9] Total clicks (includes organic and paid) were up 26% y/y indicating Google's audience ratings remain strong relative to competitors that are choosing to monetize more aggressively. At this juncture, I'd say that folks are guessing about Google's paid clicks and the impact they have on earnings. We'll know more tomorrow when Google reports its first quarter results.[9] Google'''s paid clicks slowed to a growth of just 1.8% in the first quarter. While March'''s growth was still a year-over-year increase of 2.7%, these numbers are nothing close to the double digit growth that we'''ve seen from Google in the past.[21] As Google gears up to announce its first quarter financial results on Thursday, there are early reports that its paid-click growth numbers from March will be stagnant. If this sounds familiar, its because we go through this every month now (see here and here ).[16]
Growth for the full quarter was just 1.8 percent year over year, a rapid drop from 25 percent year-over-year growth in the fourth quarter. ( Henry Blodget at Silicon Alley Insider has a good take on the worst-case scenario for Google's first quarter.)[15] Yahoo paid clicks declined 3.1 percent year over year in March (all percentages are year-over-year comparisons), though for the quarter, paid clicks at Yahoo grew 5.4 percent, also marking a drop-off from the fourth quarter's 9.8 percent growth.[15] The January and February comScore data follows Google's fourth-quarter report that indicated paid clicks rose 30 percent year over year in that period _ a sharp decline from previous quarters.[8] Earlier in the year, when comScore noticed that Google's paid clicks dipped significantly from December to January, Wall Street had a fit, and the company's stock price tumbled almost 10 per cent in two days. Then comScore "clarified" its report, arguing that everything was A-OK with the Mountain View outfit.[10] Released late yesterday, comScore's new report insists that Google paid clicks increased only 2.7 per cent in March compared with the same month last year, The Wall Street Journal reports.[10]
Late Tuesday, comScore Inc. issued a report showing that paid clicks at Google (GOOG) grew 3% in March compared with the same period last year.[11]
OK, scrap that. The March data from research group comScore Inc., released late Tuesday, marked the third-straight month that Google's paid clicks, the source of nearly all of its revenue, has disappointed analysts.[2] OVERVIEW: In February, analysts and investors reacted with concern after data from comScore Inc. indicated Google's January domestic Web search paid clicks were basically flat year over year but down sequentially.[8]
A drop to single-digit growth is inevitable, even for the mighty Google, but nobody expects it to occur overnight, which is why the ComScore data have been so rigorously questioned since it began showing weakness in the Google paid clicks business in January.[4] We believe the current consensus revenue estimates could be met with U.S. growth of 25% in Q1, down from 40% in Q4, which would allow for significant deceleration in the quarter. This 25% growth estimate obviously assumes that Google has seen a strong increase in price-per-click: If it hasn't, and the Comscore data is accurate, U.S. revenue will miss by a mile and Google's overall revenue will come in well below consensus.[19] Regardless of Google's Q1 numbers, Mahaney isn't panicking. He reaffirmed in an April 9 note that Google remains one of the best plays off the secular growth in Internet advertising. He said Google's innovation potential is creating option value in terms of the company's potential to benefit from new Internet revenue opportunities, specifically in display advertising, video advertising, and mobile search.[5]
Mr. Aiken says large search buyers are spending the same or more, and ad firms that work with large advertisers support that idea. "We don't really have any instances where we're seeing clients pull back their search ads," says Steve Governale, senior vice president and managing director of SMG Search, a unit of Starcom MediaVest, itself a unit of Publicis Groupe. If anything, big advertisers are shifting dollars to search ads because it can be easier to measure the revenue generated by them than it is for ads like glossy magazine spreads, some ad executives say. Some analysts say ad spending is dropping in some industry areas most affected by economic problems, such as financial services. Spending by advertisers in the financial, travel and retail areas declined or grew more slowly in the fourth quarter, compared with a year earlier, Yahoo President Susan Decker told analysts in January, though she said that overall the company had seen "a solid start to the year." It remains unclear how online advertising beyond search is affected by any consumer slowdown. Search advertising is the largest category of U.S. online ad spending, expected to account for 40% this year, according to research firm eMarketer Inc. Other forms of online advertising, such as graphic display ads and video ads, are generally priced using different models than per-user clicks. EMarketer last month reduced its 2008 forecast for U.S. online spending because of concerns about the softening economy.[6] In 4 p.m. trading on the Nasdaq Stock Market Wednesday, Google shares rose 1.8%, or $8.19, to $455.03. They are down about 34% since the start of the year. Mr. Aiken says his analysis of search-ad activity and conversations with search-ad buyers indicate that small- and medium-sized search advertisers are pulling back. Such a development would probably drag on Google's search-ad revenue, because about 99% of its more than one million advertisers and the majority of its revenue come from that category, according to people familiar with the matter.[6] Mark Mahaney of Citigroup also said the paid-click slowdown "could imply a risk to estimates," but said other metrics are not yet bearing that out. "The disconnect is that this type of step-function deceleration should show up as a material fall-off in leads to Search Engine Marketers and channel checks remain generally positive," Mahaney wrote in a report. Rob Sanderson of American Technology Research noted that sentiment has largely turned negative around the stock, while at least 16 brokers have trimmed back their earnings targets for Google over the past two months. "With the parade of estimate revisions and correction in the stock, expectations are considerably lower going into the report on Thursday," Sanderson wrote in a note, in which he maintained a buy rating and $750 price target on the shares.[11] Over the last two months, stock analysts cut Google earnings estimates to an average of $4.52 per share from a much richer $4.84 in January, according to Thomson Financial. Expect Google speculation to loom large at ad:tech, an online-advertising industry conference taking place this week in San Francisco.[22] The early verdict is unnerving for shareholders who have already seen Google shares fall 40 per cent since November, though from an astonishing $747 per share perch to $446.84 at the market close on Tuesday. The feeling among analysts is that Google is treading in new territory, staring at its first significant fall-off, not the best news from a tech bellweather in an already jittery market. As Blodget writes in his notoriously blunt style, "Consensus estimates for Google's Q1 have been cut significantly since the first Comscore bomb in January.[4]
The consensus of analysts polled by Thomson Financial estimate that Google will report first-quarter earnings of $4.52 a share.[7] Analysts are expecting Google to report earnings of $4.52 a share on sales of $3.6 billion.[9]
Shares of Google dipped in morning trading despite an upswing across the tech sector that was fueled by strong results at chipmaker Intel Corp. However, the stock turned up by midday, and was last up 1.8% to $454.66. The once high-flying stock has shed about 20% of its value since the company's fourth-quarter earnings report on Jan. 31.[11]
Is the paid-search advertising business as immune to a sour community as Google executives like to believe? We'll find out tomorrow. Google, of course, is one of those big tech companies people closely follow in order to get a read on the health of the high-tech industry. We watch Google's results more closely than any other Internet company for good reason: because of its dominant search market share, Google is a good indicator of the health of Internet advertising.[15]
ComScore said paid clicks and search market share for Yahoo, Microsoft and AOL also fell in March, a sign that people may be searching less for items to buy in a weakening economy. ComScore debunks this theory by virtue of its total search numbers.[5] One part of Google's problem is that paid clicks, or the number of times people click on sponsored ads, have stalled, according to comScore.[22] Data from research firm comScore Inc. showing a drop in the number of times people click on the ads have fueled the jitters, which have already knocked almost $75 billion off Google's market value since the beginning of the year.[6]
The research group said the number of times people searched on Google increased 31% in the first quarter, compared with the year ago period.[23]
Surprisingly, Google paid click grew only 1.8%But, I still think comScore must work very hard to make Google cry. This year first quarter increasement does not representate the whole performance.[2] For the entire first quarter, comScore says, paid clicks increased only 1.8 per cent from the previous year.[10]
Following a less-than-luster February, paid clicks were weak across the board in the first quarter of 2008, according to published reports of a report by comScore.[21]
For March, the latest comScore (NSDQ: SCOR) data showed an anemic 2.7 percent increase in paid clicks, basically continuing the trend we've seen all quarter. There's been no consensus on what any of this means?the bulls see quality initiatives, while others see a scary, macro-driven trend?hopefully tomorrow brings some clarity.[20] No double-digit click increases for Google again in comScore's assessment of paid click activity, as the firm found a mild 2.7 percent year over year rise in March.[1]
For the month of January, paid clicks fell 0.3 percent, which is a sharp drop from the 25 percent to 40 percent growth rates for paid clicks that Google posted in previous years.[22] Now, don't pop the champagne just yet. That growth is for the number of search queries on Google, not " paid clicks "which is a more important measurementbut, there's at least something to suggest Google will not disappoint on Thursday.[23]
Paid clicks, the source of nearly all of Google's revenue, are not the same as search queries, but there has been a loose correlation between the two over the past few quarters.[13] Paid clicks refer to the number of times Google users click on an ad-sponsored link, which is the company's main driver of revenue.[11]
Ben Schachter, UBS : "As far as a read-through into GOOG's 1Q'08 results (slated for release on Thursday after-market), tonight's data indicates that 1Q'08 paid click volumes are up a tepid 2% y/y (and down 9% q/q), which if correct, suggests the company would need to have implemented significant monetization improvements during the quarter in order to meet consensus estimates. Google may have made some pricing improvements, but we don't believe they will be enough."[20] Last quarter, Google's (NSDQ: GOOG) results were weak, and since then there's been a flood of data on paid clicks, which have been decelerating rapidly.[20]
In an effort to account for Google'''s decision to reduce ad coverage, comScore recently began reporting a new data set to include not only paid clicks, but overall clicks on Google'''s sites.[9] Where are all of a Google's paid clicks going? No one knows for sure, but comScore and Citi Investment Research's Mark Mahaney speculated that the company's attempts to improve lead quality for advertisers and the user experience for searches contributed to the decline.[5] "The evidence suggests that the softness in Google's paid click metrics is primarily a result of Google's own quality initiatives that result in a reduction in the number of paid listings and, therefore, the opportunity for paid clicks to occur," the research outfit said.[10]
Paid clicks will be a focus for Google's first-quarter report on Thursday, as analysts look for signs on how the slowing economy might affect the company's business.[11] Whatever the case, the paid click issue is top of mind for analysts heading into Google's Q1 earnings call after the market closes April 17.[5] In all of Q1, Google's U.S. paid clicks rose only 2% year-over-year versus 25% in Q4 and 48% in Q3.[19]
Now, query growth isn't the same as paid click growth-which is used as an indicator of how well Google is performing-but the two are related.[24] Anmuth is calling for revenue of $3.58 billion in the quarter, and EPS of $4.46. He also notes that paid click growth actually declined for others in the space, suggesting some macroeconomic concerns.[20] For the quarter, paid clicks were up 1.8 percent, which is a major deceleration from 25 percent growth in the fourth quarter and 48 percent in the third quarter.[9] For the quarter, paid clicks declined 5.8 percent--a noticeable turnaround from the 29.3 percent drop in the fourth quarter.[15]
Year-over-year paid clicks grew 25 per cent in the fourth quarter and 48 per cent in the third.[10]
Google's paid clicks in March were up 2.7% year over year. That follows a 3.1% rise in February and a 0.3% drop in January.[12] Paid-search clicks at Google were up 2.7 percent in March, compared to the same month a year ago.[15]
ComScore said there was a 2.7 percent jump in ads clicked near Google search results, a figure that the Wall Street Journal translates to 1.8 percent for the current financial quarter.[18] Ross Sandler, RBC : Some are expecting strong growth internationally to rescue Google if the U.S. underperforms. After querying various European search engine marketers and ad networks, Sandler is predicting 52 percent international growth in the quarter, though he notes there could be a drop off in the second half.[20] How does query growth relate to revenue growth? In the third quarter, Google's U.S. queries rose 50%while U.S. revenue jumped 46%.[24] We believe the current consensus revenue estimates could be met with U.S. growth of 25% in Q1, down from 40% in Q4, which would allow for significant deceleration in the quarter". This is the rosy scenario.[4]
The Silicon Alley Insider believes current consensus revenue estimates that Google Q1 revenues should come in at around 25% in the first quarter. This assumes the search giant's average cost-per-click rose markedly, which of course was the intended goal of the system tweak.[17] Google may have increased first quarter revenues by charging advertisers more for the average click. This well within its powers.[10]
Silicon Alley Insider The latest comScore figures don't solve Google's case of the missing clicks, but they may ease fears that the search giant tanked the first quarter.[24] A nosedive in query growth, compounded by fewer overall clicks on sponsored listings, would certainly have amounted to a terrible first quarter for Google.[24]
SearchIgnite, a search advertising technology firm, said Google lost advertising dollars to Yahoo! (nasdaq: YHOO - news - people ) in the first quarter.[7] NEW YORK -- Google Inc. reports earnings for the first quarter after the market closes on Thursday.[8] What's more, for the first quarter of 2008, paid-clicks grew by only 2% year-over-year, compared to 25% in the fourth quarter and 48% in the third quarter. We may finally get a peek at the impact these declining paid-clicks are having at GOOG when the company reports earnings tomorrow night.[25]
Options speculators appear to have high expectations for a short-term jump from GOOG - maybe following the company's earnings report. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.55 ranks below 81% of all those taken during the past year, indicating that speculative investors have been more bullish only 19% of the time in the past 52 weeks.[25] On Tuesday afternoon, Intel executives signaled confidence in the coming year. IBM, another one of those tech bellwethers, reports its first-quarter earnings after the stock market closes this afternoon. By the end of this week, we'll have a better sense of whether it's time for tech companies to batten down the hatches.[15]
My takeThis is the curve you would expect with a new media: Google's revenue grew quickly as more and more customers placed ads and evaluated results but before those results were in. This is continuing but is being moderated by customers who are now making adjustments in response to real data about ad effectiveness. This will take some time to work itself out and then we will see the "real" earnings curve for Google and I think only folks in Google have any idea what that will look like. [12] SearchIgnite also noted that total ad spending growth slowed down in March, raising concerns about second-quarter ad spending. The report is welcome news for struggling Yahoo!, which needs to post stellar earnings on April 22 to force Microsoft (nasdaq: MSFT - news - people ) to raise its offer for the Internet portal.[7] There can not be endless growth in clicks - after all, people are looking for content, not ads. It will be an interesting Thursday. Time for google to start buying more promising companies than they are.[19] Wall Street analysts and Google management have all sorts of ideas about why Google is recession-proof. CEO Eric Schmidt says the company will be saved by international growth and/or the diversity of its advertiser base.[22]
Google's (GOOG) U.S. paid-click growth in March was as bad as in February--up only 2.7%--rounding out a violent deceleration in Q1, says Comscore (per Mark Mahaney at Citi).[19] According to comScore March data, Google's query growth in the U.S. accelerated grew 4% over February.[24]
The number of people clicking on search advertisements through Google Inc. grew at a slow pace March for the third straight month, according to data from the research group comScore Inc.[3] Market research group Comscore Inc. (SCOR) said late Monday that Google's volume of search queries in March grew 30% year-over-year, reversing a deceleration from January to February.[13]
The Mountain View, Calif., company gets paid when users click on sponsored ads that come up along with results of a Google search. [8] Google is paid a few cents to a few dollars each time a user clicks on an ad.[7]
A bad January was normal, a seasonal abnormality, market observers pointed out. Others questioned the impact of a larger global economic downturn on Google's business. It was assumed, Google would escape that too in the long run as advertisers ditched the more expensive forms of advertising for Google's lead-driven ad model. Google issued its own explanation saying it was cleaning up its inventory so advertisers are no longer paying for bogus hits. Investors breathed a sigh of relief as it became clear Google was addressing two of its bigger weaknesses: phoney leads and, hopefully, click fraud.[4] Analysts debating the cause of the ad click slowdown point to a push by Google to improve ad quality, a process that would increase the price the Internet giant can charge advertisers.[18] Analysts and Google pundits are split on what the ComScore numbers mean. Google maintains that its deceleration has more to do with its efforts to improve the quality of its ad leads (which should drive up average selling prices) than a broader economic slowdown.[15]
The next month, concern was again sparked when analysts, citing comScore data, said Google's click-through rate grew 3 percent in February year over year.[8] If, Blodget says, "the Comscore data is accurate, U.S. revenue will miss by a mile and Google's overall revenue will come in well below consensus.[4] ComScore's Mr. Abraham says some people have jumped to conclusions that comScore's data don't support. "People automatically assumed Google's revenue is going to be missing their target," he says.[6]
"If the comScore data is correct, then the cause is mostly due to quality initiatives instituted by Google rather than just slowing economic trends impacting online advertising," Robert Peck of Bear Stearns wrote in a report to clients. Peck added, however, that "we have not ruled out the latter."[11] With expectations high, and ComScore data suggesting that the company's earnings may be in trouble, the outlook for GOOG's report after the close tomorrow isn't very encouraging.[25]
Fresh comScore data shows that the number of paid-for clicks in March rose by 2.7pc against the same month last year.[14] From my understanding comScore says the number of paid clicks have decreased.[2] Doug Anmuth, Lehman : The decline in paid click growth can be chalked up to decreased coverage ratio, associated with improved quality initiatives.[20] In that report, the company first disclosed a slowdown in the growth of paid-clicks, which was blamed on quality improvement initiatives designed to prevent accidental clicks.[11] For the first quarter, the paid-click growth rate was only 1.8% compared with the previous year -- which represents a sharp slowdown from the 25% growth rate in the previous quarter.[11] The company's first quarter announcement will be as important as federal rate cut or economic forecastperhaps even becoming a sign of the severity of any recession. Hit (or exceed) projections and expect Google shares to make back some of what it's given up over the past couple of months.[23] The guessing game will be over on Thursday when Google reports first quarter results.[4]
During the quarter, Google reacted to Microsoft Corp.' s bid to buy ailing Internet icon Yahoo Inc. for more than $40 billion, which was announced in February. In a posting on the company's official blog, Google's chief legal officer David Drummond said it "raises troubling questions," such as whether Microsoft could use such an acquisition to "attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC."[8] Microsoft launched an unsolicited bid of $45 billion, or $31 per share, for Yahoo! on Jan. 31. Yahoo! has rejected the offer twice, saying it's too low. Last month, Yahoo! reiterated its first-quarter and full-year projections for 2008, in hopes of quelling Wall Street's concerns that it might post disappointing results.[7] Wall Street currently expects revenue to grow by 42% for the quarter while earnings per share is expected to increase by 24%, according to estimates.[11] EPS expectations, according to Thomson (NYSE: TOC) (via Forbes.com ) are for the company to earn $4.52 per share on revenue of $3.61 billion.[20]
Analysts are looking for a profit of $3.98 per share from the firm, a figure that has been revised sharply lower (from $4.36 per share) during the past 90 days, according to Zacks.com.[25]
What remains to be seen, of course, is whether the ComScore results have any correlation to Google's financial results. Similarly disappointing news earlier this year led to a significant drop in Google's share price. [15] STOCK PERFORMANCE: Google shares sank a bit more than 36 percent during the quarter.[8] In an orgy of recession hysteria, investors sold Google shares in a panic, sending the stock down 10 percent over two days in February.[22]
Since November, Google shares have dropped about 40 percent since hitting $747.24.[15]
The price for commerce related search queries seems to have increased, from various surveys of PPC management firms. There have been a chorus of adsense publishers that claim a decrease in revenue, driving speculation that Google is increasing their share of the revenue on adsense sites.[2] There is still positive growth too, so the bottom line would be to have a look-see at what revenue Google was deriving from adwords billing.[2] "We expect higher growth for revenue and less for earnings, largely because of the MySpace deal.[22]
When Google Inc. reports first-quarter earnings after the market close Thursday, investors will find out whether their worries about the impact of the softening economy on Google search ads are justified.[6] On the company's earnings call, "we'll be listening for qualitative updates on trends in the paid search industry--pricing, click-thru rates, coverage ratios--as well as any comments from management on the relationship between paid search and the economy," Citigroup analyst Mark Mahaney wrote in a recent note.[7]
Immediately after the sell-off, though, comScore rushed to Google's defense, arguing that the decline was part of the company's grand plan to deliver hotter leads to advertisers, which would potentially lead to higher ad rates.[22] If Google's Q1 numbers suck, comScore will be the "go to" company for web metrics.[2] Yesterday we asked if Google's Q1 would be a "hit" or "miss" and offered numbers from comScore which suggested the news might actually be good.[2]
Consensus estimates for Google's Q1 have been cut significantly since the first Comscore bomb in January.[19]
Incidentally, comScore said on April 16 that U.S. Internet users viewed more than 10 billion online videos during February 2008, a 66 percent gain versus February 2007. More than a third of those were viewed on Google's YouTube video property.[5] The news, coming ahead of Google's first-quarter results today, is of interest given increasing concern as to whether the internet giant is being hit by the U.S. consumer slowdown.[14]
Google's impact won't be limited to online advertising. If the company misses first-quarter expectations, its miss is likely to weigh on the entire stock market, and certainly on other internet stocks.[22] Fail to reach expectations and you can expect Google's stock to falterif not tankand you can pretty much assume Google won't be making any big acquisitions any time soon.[23] Without the $700+ stock price, any acquisition by Google would be a lot more costly.[23]
Microsoft, Yahoo and advertisers had argued that the acquisition would give Google too much control over the prices of online ads, but the European Union said the purchase won't curb competition in that market.[8] Conditions were even worse for some of Google's rivals, with Yahoo (YHOO) down 3.1% in March, Microsoft's (MSFT) MSN down 15.1%, and Time Warner's (TWX) AOL down 2.3%.[12] The marketing company also said Yahoo, Microsoft and AOL also saw slowing ad clicks in March.[18]
At the time, Google said the change was related to efforts it made to cut down on "accidental" clicks on ads.[8] ComScore too has been put under the microscope for boldly signalling a caution flag against Google. Nobody expects a third-party measurement firm to catch every click, but they do expect some consistency in the monthly data.[4] Along with Google, Schachter notes that comScore is also under the gun: "Bottom line is that we think the overall trends reflected in comScore are accurate, but comScore data itself is difficult to use for specific modeling purposes.[20]
UBS analyst Ben Schachter wrote that the company "would need to have implemented significant monetization improvements during the quarter in order to meet consensus estimates. Google may have made some pricing improvements, but we don't believe they will be enough." [3] Not meeting analyst expectations doesn't seem too far fetched. Our economy is slowing and advertisers are probably holding on to more of their money, not to mention some analysts seem to expect too much from Google (probably for good reason). I know that in the markets we serve, it looks like there are less real estate companies advertising and they aren't advertising as much as they were 6 months - a year ago. Like your take on this issue, Wes.[2] Can someone please explain to me why analysts and journalists and bloggers (monikers serving as sufficient precaution) continue to parrot Google's line about "Google's ongoing efforts to improve both lead quality for advertisers and the user experience for searches."[19] Assuming the data is'' accurate,'' we could see two factors behind the Coverage Ratio decline: 1. Google's ongoing efforts to improve both lead quality for advertisers and the user experience for searches. 2.[9]
Disappointing numbers at all the major search sites may indicate that there's a broader economic explanation than Google's improved quality control.[15] Google has decreased the number of low quality clicks, which are most likely clicks for pennies.[2]
Mark your calendars for this Thursday. That's when Google will reveal its Q1 numbers for 2008. This is normally a big day for investors anyway, but this time the stakes are higher than normal.[23] Google releases Q1 revenues later today Thursday, April 17 at 4:30pm EST/1:20pm PST.[21] AOL's CTR and coverage ratio was 18.5% and 65.4% (vs. 18% and 64.6% in Feb). We should also note that Google's coverage ratio continued its recent decline to 45.5% in March, its lowest level ever. We continue to believe that this is the right thing for Google to do for the long-term health of the Google ecosystem, but will likely negatively impact revenue in the near-term.[16] Will kill paypal. Froogle, and so many others including youtube. All google has to do is turn on these revenue streams.[19]
Recession surely hit Google. Since we're all playing I'll guess they narrowly avoid a miss, but they don't quite register a hit. I'll also guess that people will spin the results from both sides making them look better and worse than they really are.[23] This is all due to the well publicized quality controls volunteered by Google.[12]
Google's share of ad dollars declined to 70.4% at the end of March from 74.5% at the end of December.[7] Market share has not dropped. MSFT attempt to buy YHOO shows their real fear of GOOG and the dominance GOOG will have. Its basically a five year old company gorilla in a growth market.[12] According to ComScore, paid-click growth number for GOOG were abysmal once again in March, rising only 2.7& from February.[25]
Comscore last month prompted concern among investors and analysts when it reported weakness in the number of consumers clicking on the Internet giant's search ads in February.[13] U.S. advertisers will spend $25.8 billion on Internet ads, eMarketer says, down 6.2% from earlier estimates but up 23% from $21.1 billion in 2007.[6] Some analysts say the company won't take much of a hit, because direct marketing outsells brand-promotional ads during recessions. The bottom line is that if consumers buy less stuff, advertisers will probably trim their ad budgets.[22]
There is absolutely no discussion about what the company does with the money once it gets it. The company has a track record of actually destroying value with high G&A;, investment in cool but 0-value products and services and running some high risks such as bidding billions for spectrum and hoping to be overbid by VZW. Nobody discusses the poor (or inexistent) growth strategy for the company beyond search advertising, and the negative impact it has on its value.[19] For the quarter, it managed 0.3 percent growth, versus a 15.8 percent increase in the fourth quarter.[15] Equally worrisome to analysts and investors is the looming possibility of a recession. (Economists define a recession as two successive quarters of negative growth.[22] After showing a scary 11% decline (from 37% to 26%) in U.S. query growth from January to February, investors should be somewhat reassured that growth deceleration stabilized at about 30% for the quarter.[24]
As the U.S. economy slows, anxiety is mounting over Google's first-quarter earnings announcement, which is scheduled for Thursday. [22] Consolidating market share should be the prime focus, rather than focusing on search volume. Am interested to see their posted earnings.[23] I certainly hope Q1 numbers or not above estimates or at least not much. That way maybe the stock will dive for a little so I can pick up some extra cheap shares.[12] Who is going to gain share from GOOG over the next several years? NOBODY. And when the economy accelerates, GOOG's ad business will likewise accelerate.[12]
Yesterday brought more bad news for Internet-search giant Google ( GOOG : sentiment, chart, options ).[25] Google's become a victim of its success. It's network fraud has depressed rpc, and that was supposed to be address be 'cleaning up the traffic' last year. That didn't work, so now they're cleaning up the arbitrage advertisers. It's an incremental improvement at best. This is the beginning of the end of Google's dominance.[12] Good analysis MG. As you say, Google reduced the clickable area on ads to reduce 'accidental clicks', and as such conversion rate % should have improved.[16] In one instance, we found page that converted very well for us, so we made sure we were the only advertiser on that page. We entered into discussions for a direct link and discovered while our advertising costs remained the same, the publisher's side showed a significant decrease in revenue this past month per thousand impressions, as measured by a adsense channel they setup. It is highly unlikely they were'smart priced' as the conversion rate held constant and it was a cpm buy.[2]
Less companies are prone to buy certain words; thus, less paid click growth/revenues are generated by our friends. [19] Everyone can argue about the meaning of a big pile of data in the form of an actual earnings report.[20]
SOURCES
1. Google Ad Clicks Trickle Up In March | WebProNews
2. Is comScore the Boy that Cried Wolf?
3. Google click stats slump - East Bay Business Times:
4. The death of Google - Times Online
5. Google`s Paid Clicks Spark Fears of Weak Q1
6. Has Economy Hurt Google Search Ads? - WSJ.com
7. Google In The Hot Seat - Forbes.com
8. Earnings Preview: Google | Chron.com - Houston Chronicle
9. Google's paid clicks anemic in March; Will it matter? | Between the Lines | ZDNet.com
10. Google paid click rate decelerates (again) | Channel Register
11. UPDATE: Analysts Stay Positive On Google Despite Paid-Clicks Slowdown
12. Tech Trader Daily - Barron's Online : For Google A New Month, Same Story: Weak Paid Clicks
13. Google Search Queries Bounce Back, Says Comscore
14. Revenue fears over Google ad-clicks - Telegraph
15. Is there something wrong with Google's search ads? | Tech news blog - CNET News.com
16. Google's paid-click growth in March: The song remains the same? » VentureBeat
17. MediaPost Publications - Google Paid Clicks Disappoint In March - 04/16/2008
18. Google Ads Clicked Fewer Times In March | April 17, 2008 | AHN
19. Google: March Paid-Click Growth Awful (Again) - Silicon Alley Insider
20. Earnings Preview: Google Q1 On Tap - washingtonpost.com
21. Paid Click Growth Slows, Declines in Q1 2008 [SearchEngineWatch]
22. Analysts Doubtful as Google Quarterly Earnings Approach
23. Google's 2008 First Quarter Results - Hit or Miss?
24. MediaPost Publications - Google Q1 U.S. Growth Could Be 30% - 04/15/2008
25. Schaeffer's Investment Research - Schaeffer's Daily Market Blog: Breaking Option News, Commentary, & In-depth Analysis
GENERATE A MULTI-SOURCE SUMMARY ON THIS SUBJECT:
Please WAIT 10-20 sec for the new window to open...
You might want to EDIT the default search query below:
Get more info on Has Economy Hurt Google Search Ads? by using the iResearch Reporter tool from Power Text Solutions.
 |
|  |
|
