While the "Do No Evil" guys shocked Wall Street with its faux (and evil) stock split, announced during last week’s quarterly earnings review for Google, there was another “split” discussed, and it seemed to fall through the cracks.
Over the two days following the call, GOOG fell $35 (nearly 5%), made worse by $10 of pre-announcement run-up. Google didn’t meet expectations in a key metric – cost-per-click for the paid-search business that still constitutes the bulk of Google’s total revenues.
Cost-per-click “growth” for Q1-2012 was negative 12% compared to a year ago, and down 6% quarter-over-quarter. This metric caught everyone’s eye in Q4, when Google saw the first year-over-year decline in CPC in more than two years.
CFO Patrick Pichette had this to say, in an attempt to calm listeners on the earnings call:
“…dynamics around CPCs and paid clicks are just simply very complex…”
SIMPLY complex. [We love reading earnings transcripts for these verbal tics…]
Pichette then spun the complexity wheel by stating the CPC decline was driven by five factors. The one marketers should pay attention to = “…the shift in search activity from desktop computer to mobile computer.” This is the other “split” that everyone else might miss.
This, of course, is not good news looking forward, unless the many, many hands on the mobile advertising steering wheel get it together. One major driver in raising CPC is demand (i.e., more marketers bidding on a keyword, ratcheting up its price), and as we have said at Lairig Marketing about a billion times, “The Year of Mobile Advertising” is about six years late.
One wonders when someone will come up with the idea to track the CPC metric for iPads and other tablets SEPARATE from smartphones. The delta there must be significant, and getting larger over time.
The mobile CPC dynamic will certainly impact Facebook, but will be a discussion that won’t take place before the IPO, we wager. But you only have to look at Pandora’s stock price to see what low mobile CPCs mean from a business standpoint. After debuting at $16 last June, Pandora tread water around $12 until this March, where it has trended straight down to $8-and-change.
Mobile CPC is indeed a sensitive topic. When a Barclays analyst took another attempt at interrogating Google’s cost-per-click performance on last week’s earnings call, CEO Larry Page had this to say:
“I'm just going to close the call here…”