People don’t like bad surprises. For Wall Street, that goes double, especially when a major tech company like Google accidentally leaks its quarterly earnings report before the stock market closes and shows an earnings miss. That happened today.
Investors responded to Google’s $11.5 billion in third-quarter revenue falling short of projections—despite growing year-over-year by 19 percent—by dumping the stock by nearly nine percent before trading was halted. What gives? As Business Insider pointed out, Google’s limp Q3 numbers are largely due to its recently added Motorola business. Net income dropped by 20 percent year-over-year to $2.18 billion, but the company’s costs rocketed 70 percent year-over-year to $11.4 billion, which included the introduction of $2.1 billion in costs from Motorola.
Nonetheless some folks pointed their concerns toward Google’s advertising business. Still Google’s cash cow, advertising accounted for 94 percent of total revenue (and 77 percent when factoring in revenue from Motorola), growing by 16 percent to $10.9 billion. But Business Insider and Buzzfeed zeroed in on the 15 percent drop in average cost-per-click as indicative of the company being in serious trouble. That’s not really the case—or at least not exclusive to Google.
The average cost-per-click has actually been trending downward for some time now. During the first quarter it dipped by 8 percent year-over-year, and then by 16 percent last quarter. When digital marketing firm Efficient Frontier (now owned by Adobe) calculated earlier this year that its clients’ Google search campaigns had seen a 2 percent decline in CPCs at the end of 2011, it chalked up the reduced cost to more clicks coming from mobile devices where CPCs are typically lower than for desktop ads. Google didn’t break out mobile ad numbers, but it did show that the number of paid clicks it serves jumped by 33 percent, of which mobile likely played a growing role.
Other companies, Facebook perhaps most famously, have also struggled to monetize mobile at a level that would rival revenue from desktop ads, and it appears Google’s not immune. For now, the quantity of mobile inventory may offset the reduced value of those clicks, but should that scale reach a tipping point, Google will need to find ways to squeeze more dollars from each of those impressions. It will be interesting to hear whether Google discusses its mobile advertising strategy during the company’s earnings call this afternoon.