Thursday, June 7, 2012

Google Conf Call: Ad Format Changes Hit Cost-Per-Click

Following disappointing Q4 results this evening, Google‘s (GOOG) CEO Larry Page talked with analysts on the company’s conference call, saying that he was “very happy with our results,” as the company “blew past the $10 billion [revenue] mark for the first time. Pretty exciting.”

Regarding the company’s advertising business, where the “cost-per-click” unexpectedly declined last quarter, the company attributed some of that to changes in advertising format:

When we make ad quality or format changes, CPC and paid clicks may be impacted differently. For example, when we introduced site links, we saw an increase in clicks. But the additional clicks were on lower CPC ads, which reduced the average CPC. Many of the ad quality changes in Q3 increased paid clicks at lower CPCs, and they were revenue-positive with good user and good advertiser metrics. These ad quality changes from Q3 had a cumulative effect on Q4 metrics.

When UBS Securities’s Brian Pitzer pressed management on the decline in cost-per-click, management reiterated that “multiple factors” were responsible, but the main ones being foreign exchange and changes in “ad quality or format changes.”

The company’s revenue from display advertising, which is not its traditional strength, is now at a “run rate” of $5 billion annually, Page said. The company is seeing “tremendous mobile users,” said Google’s chief business officer, Nikesh Arora, in answer to an analyst question about how great a shift was going on from traditional desktop search to searching on mobile phones and tablets.

Users of Google’s social network, Google+, more than doubled from last quarter, said Page, to 90 million users. Google’s phone and tablet operating system, Android, is seeing 700,000 activations per day, said Page, and now is running on 250 million devices. During the holiday weekend last month, 3.7 million devices were activated.

Google shares are down $57.18, or almost 9%, at $582.39.

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