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 with
February, but that's not what has financial analysts flapping their gums a day
before the search giant announces first-quarter earnings.
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.
Indeed, 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.
Where are all of Google's paid clicks going? No one knows for sure,
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.
Whatever the case, the paid-click issue is top of mind for analysts heading
into Google's first-quarter earnings call after the market closes April 17.
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 the first quarter, down from 40 percent in the fourth
quarter, 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
revenue will miss by a mile and Google's overall revenue will come in well
below consensus," Blodget wrote April 15
Google isn't alone in the paid-click problem. 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.
However, ComScore debunks this theory by virtue of its total search numbers.
In March 2008, Americans made 10.8 billion searches, representing a 9 percent
increase from February.
Regardless of Google's first-quarter 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.
Moreover, 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
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.