Google’s Paid Clicks Weak In March, Says ComScore

Apr.16, 2008 in Market Outlook

Last Update: 4/16/2008 12:55:32 AM

By Scott Morrison

Of DOW JONES NEWSWIRES

SAN FRANCISCO (Dow Jones)–The number of U.S. consumers clicking on Google Inc.’s
(GOOG) search ads was weak once again in March, according to new data that
renewed questions about the Internet search and advertising giant’s ability to
meet consensus estimates when it reports first quarter results on Thursday.

The March data from research group comScore Inc., released late Tuesday, marked
the third straight month that Google’s paid clicks, the source of nearly all of
its revenue, has disappointed analysts.

Google’s ability to meet recently lowered first quarter estimates appears to
depend on whether the Mountain View, Calif., company has been able to quickly
drive up the rates that advertisers pay when consumers click on their ads.

“The company would need to have implemented significant monetization improvements
during the quarter in order to meet consensus estimates,” wrote UBS analyst Ben
Schachter in a note. “Google may have made some pricing improvements, but we
don’t believe they will be enough.”

Other analysts continued to argue that the deceleration in Google’s paid clicks
was primarily a result of the company’s efforts to improve ad quality and any
impact would be offset by an increase in the average price per click.

“The weakness in the comScore click data overstates the negative impact on
Google’s business in our opinion,” wrote Credit Suisse analyst Heath Terry. “We
believe the revenue impact is likely to be muted.”

ComScore said Google’s U.S. paid clicks grew 2.7% in March compared with the same
month last year. That meant Google’s U.S. paid clicks for the first quarter grew
just 1.8% over the year ago period, a sharp deceleration from the company’s 25%
growth rate in fourth quarter and 48% growth in the third quarter.

Citi analyst Mark Mahaney said the U.S. paid click data could imply a risk to
Google’s first quarter if the comScore numbers were representative of the
company’s global trends.

But Mahaney, like other analysts, was quick to caution that comScore’s data
hadn’t always shown a high correlation with Google’s actual financial results.

If the comScore data was accurate, it remained unclear exactly why Google’s paid
clicks were so weak. ComScore reported that Yahoo Inc. (YHOO), Microsoft Corp.
(MSFT) and Time Warner Inc.’s (TWX) AOL all saw paid clicks fall in March, which
some analysts said was an indication that U.S. consumers were feeling the effects
of a weakening economy and searching less for items to buy.

Google maintains that the deceleration in paid clicks reflects its efforts to
improve the quality of its advertising leads, which is expected to drive up
average prices. Google has also argued that its search-advertising revenue will
be more immune to economic troubles because the company provides advertisers with
a measurable return on investment.

Google’s claims have been backed up by the search engine marketers who place the
ads that appear next to Google’s search results. Several marketers have told Dow
Jones that overall search ad spending continues to rise and that Google has been
driving up its ad rates.

The uncertainty over the significance of comScore’s March data echoed the debate
that ensued last month following the release of the research group’s February
paid click numbers. That data prompted many Wall Street analysts to trim their
first quarter estimates for Google.

Analysts on average now expect Google to post earnings of $4.52 per share on
revenue of $3.61 billion when it reports first quarter result after market close
on Thursday.

Google shares, which have plunged more than 40% since hitting an all-time
intraday high of $747.24 in November, closed down $4.82 at $446.84 on Tuesday.

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