Buying Google Inc (GOOG) Stock? Keep an Eye on This

Google Inc (NASDAQ:GOOG)‘s stock has been red hot as of late. Over the last 12 months, the stock price has popped over 57%, and many in the media are talking about Google Inc (NASDAQ:GOOG) hitting $1,000 per share by next year.

But a company’s value is determined by much more than its stock price — it involves key factors that can make or break a company. In the case of Google, stock investors need to keep a sharp eye on the company’s search advertising paid click revenue, as well as the cost-per-click, or CPC. To the savvy investor, this may seem like a no-brainer, but given Google Inc (NASDAQ:GOOG)’s mesmerizing mix of innovations, it’s important to remember the basics.

Google Inc (GOOG)

Not all search ads are the same
Talking about search advertising and CPC isn’t nearly as exciting as talking about other Google projects like Glass, Internet balloons, or autonomous cars… but it does start to get exciting when you consider that search advertising is the crux of the company’s business.

But mobile has changed the game for Google Inc (NASDAQ:GOOG). Though paid clicks have been on the rise — they were up 20% year over year for the company in Q1 2013 ­– CPC was down 4% the same quarter ­– both year over year and from Q4 2012. This was the sixth consecutive quarter that the CPC prices fell. This drop comes in part from the explosion of mobile devices, which obviously leaves less room on screens for advertising.

Google Inc (NASDAQ:GOOG)’s advantage is that it’s successfully moved into mobile, where other tech companies have struggled. Google’s Android operating system commands 75% of the global smartphone market and 56.5% of the tablet market. That’s quite a feat, considering the operating system officially launched less than five years ago.

Clicking the future
The challenge for the tech company is if CPC continues to fall, as this can directly impact the company’s bottom line. What Google has working for it that it currently owns two-thirds of search engine market share in the U.S., and its mobile services continue to grow. If Google can offer more mobile services — or continue to improve mobile ad clicks on current ones ­– then it may be able to offset the declining cost per clicks.

An Adobe Systems Incorporated (NASDAQ:ADBE) report that came out last week showed that Google’s enhanced campaigns increased CPC by 6% over the past three months. The majority of the increase came from both mobile devices and tablets. The company’s enhanced campaigns — which merge desktop and mobile ads — are optional for advertisers until July 22. Once the change goes into effect for all advertisers, the CPC rates for mobile bids are expected to increase. This is good news for Google Inc (NASDAQ:GOOG) — and its investors should take note as well.

The article Buying Google Stock? Keep an Eye on This originally appeared on Fool.com and is written by Chris Neiger.

Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Adobe Systems (NASDAQ:ADBE) and Google. The Motley Fool owns shares of Google.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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