Google’s average click costs slipped further in the first quarter (see the release), continuing a decline that has pleased advertisers and alarmed some investors.
Aggregate paid clicks, including both on Google’s sites and its network partners, grew 39 percent over Q1 2011 and 7 percent over the previous quarter. As it did, average cost-per-click fell 12 percent year-over-year and 6 percent sequentially.
CFO Patrick Pichette addressed the trend at length on the company’s earnings call today, saying several factors have contributed. Among them: pricing trends in emerging versus developed markets; spending shifts on network versus in-house sites; and the shift from desktop to mobile search, where ads generally cost less due to lower demand.
Pichette noted some investors have assumed the price trend indicates weaker demand for Google ads in general. “One important signal we have for advertiser demand is bidding behavior,” he said. “Our advertisers’ bidding process continues to be very strong and growing… We believe the shifts in CPC and paid clicks do not reflect the health of the business.”
Pichette held up the SiteLinks product as an example of an ad format that draws less spending but that Google believes will pay off in the long run. “You have less CPC for additional Sitelinks but if you have a better ad people click a ton on them,” he said.
Later in the call, CEO Larry Page picked up on the shift to mobile and its impact on ad prices. “People always spend the most on whatever is the major source of revenue,” he said, adding “the ability [of mobile] to do local transactions, to really easily communicate with people” are reasons the company has invested in products like Google Wallet and Offers, its daily deals platform. “Since you spend most of your money locally, over time CPCs may get better.”
Google had a few updates on display ad sales, which as previously reported is on an annual run rate somewhere north of $5 billion. Nikesh Arora, chief business officer, said brands hunger especially for YouTube, which has reached 800 million monthly users and continues to growth.
“We’re seeing tremendous demand for YouTube inventory that is brand related,” said Arora.
This, he said, is leading the company to shift its pitch to global advertisers in the 60 countries where its sales force active. “YouTube acts as an anchor property, and we are able to get brands to engage in large campaigns that can run to millions of dollars.”
Stock Split Proposal and a Walk Down IPO Memory Lane
Also today, Google announced plans for a new class of stock and a dividend that will distribute shares equally to existing investors, in what amounts to a two-for-one split.
Page used the news as an excuse to walk down IPO memory lane, calling up Google’s innovative 2004 public offering, which gave investors little ability to influence decisions. He noted this structure has become common among newly public tech companies. “In our experience success is more likely if you concentrate on the long term,” said Page.
Of course, today’s earnings statement is in all likelihood Google’s last report to investors before Facebook goes public and becomes the new belle of the earnings season ball. It’s hard not to see Page’s remarks as an indirect reflection of that key event, expected in May.
In a remark that seemed to reinforce the timing with Facebook's IPO, Page said there was no urgency to make these changes. “We don’t have an unusually big acquisition planned, in case you were wondering," he said.
For all units during the quarter, Google saw revenues of $10.7 billion, a 24 percent increase over Q1 2011 and its second quarter cracking the $10 billion mark. Q1 net income was $2.9 billion, compared to $1.8 billion in the year-ago period.
From a regional standpoint, Arora called the Americas “generally sustainable.” In the U.S. the Super Bowl helped, while Canada was “a little slower.” U.K. revenue was strong at $1.1 billion for the quarter despite European economic pain, while Germany, France and Italy grew “slightly less quickly” than in previous quarters. Asia growth was robust, and Arora said Japan grew faster in the quarter after spending declines linked in part to the aftermath of the country’s earthquakes and Tsunami.
Revenues from outside the U.S. were $5.8 billion, representing 54 percent of the global take.
Headcount rose only modestly as Google added roughly 600 staff, bringing its global full-time HR rolls to 33,077 as of March 31.
On the question of Google+ usage, Page addressed some discontent resulting from his statements last quarter . At the heart of the confusion was this remark: “Engagement on Plus is also growing tremendously. I have some amazing data to share there for the first time. Plus users are very engaged with our products - over 60 percent of them engage daily, and over 80 percent weekly.”
That statement suggested to some that Google+ had a daily engagement rate of 80 percent. Not so.
Page stated today that more than 170 million have Google+ accounts, which can be accessed across the Google family products via the so-called social layer. He said the second part of Google+, the social network destination, has seen healthy growth but didn’t share critical data on unique users.
- Zach Rodgers