The miss
Ad prices remained under pressure and affected earnings. The cost per click of the company’s ads was down 6% year-over-year. At the same time, paid clicks were up 23% year-over-year. Google Inc (NASDAQ:GOOG) moved to new “Enhanced Campaigns,” which allow users to manage both PC and mobile ads in one campaign. Mobile clicks are cheaper than PC clicks, putting downward pressure on ad prices.
Google’s competitor Yahoo! Inc. (NASDAQ:YHOO) has shown the same trends in its quarterly report. In Yahoo! Inc. (NASDAQ:YHOO)’s case, the price per click was down 8%, while paid clicks increased by 21%. This shift is most likely to be temporary. As the mobile platform becomes more and more important, more advertisers will compete for this space and push the click prices higher. Another likely contributor to the price drop is a shift in search volumes towards emerging markets where advertisers have lower budgets.
Google’s sales chief Nikesh Arora has stated that better data about users would lead to increased mobile conversions; this will in turn lead to higher ad prices. Facebook Inc (NASDAQ:FB), another of Google Inc (NASDAQ:GOOG)’s competitors on the ad front, has always struggled with low conversions. The click-through rate for Facebook ads is estimated to range from 0.03% to 0.92%. The low end of the range can be considered as not performing at all. In June, Facebook Inc (NASDAQ:FB) eliminated its sponsored search ads. The company plans to get rid of over half of its 27 ad products as having too many options confused its advertisers. These efforts have yet to influence the stock, however, which is down 3% this year.
Revenue growth stalling
If we look at Google’s revenue growth, we can easily see that it is stalling. The company reached its peak quarterly revenue in the fourth quarter of 2012. Of course, the fourth quarter is a peak quarter for advertisers. In previous years, however, Google Inc (NASDAQ:GOOG) managed to post growth as it headed into the new year. Is it a sign that the company is maturing if it lacks growth?
The core of Google’s business is still ads. Google.com and the Google network produce 85.5% of the company’s revenue. On the ad field, Google is competing with Facebook Inc (NASDAQ:FB) and Yahoo! Inc. (NASDAQ:YHOO). While Facebook is trying to monetize its huge user base, Yahoo! Inc. (NASDAQ:YHOO) has put a stake in different products which would attract users and is promising to make video investments in the second half of the year. Google Inc (NASDAQ:GOOG)’s YouTube is a clear leader in the field, but it has had its problems too. Google launched a YouTube-based paid subscription service back in May, but early partners state that the demand for the service is muted. The video advertising field has yet to show its true potential, however.
