Disappointed investors drove shares of Google down 3 percent yesterday amid flat ad click growth, but Wall Street may have to take a longer term view of the search ad company.
The comScore report on paid clicks in February showed flat year over year growth in paid clicks on Google’s ads. Since those represent the vast majority of Google’s revenue, investors reacted predictably, knocking shares down to $444.08.
It may be a little too soon to start planning for Google’s funeral, despite the mournful gloom setting in with investors who are starting to suspect Google will never see a price approaching $747.24, its peak price, again.
Google has been taking steps to wean itself off certain sources of clicks. Ads they deem of low quality for visitors cause Google to drop an ultimatum on those advertisers: make those ads comply with our quality guidelines, or pay through the nose for your keyword bids.
Ever heard the saying about cutting off one’s nose to spite one’s face? That’s what Google did with these ads: impromptu plastic surgery on its bottom line. Long term, that should leave better performing ads to pull in conversions, making keywords more valuable to advertisers and lucrative for Google.
With fewer low quality ads to pull in clicks, it makes sense those clicks will decline. We wonder, however, if there are fewer ads overall for people to click. Did advertisers throttle back hard after the end of the winter holidays, amid economic concerns?
Don’t wait for Google to answer, as they famously do not provide financial guidance to Wall Street. It would be interesting to learn what Eric Schmidt expects from display ad server DoubleClick, its newest toy.
DoubleClick cleared antitrust reviews in the US and Europe, freeing up the company to be acquired for $3.24 billion. Once Google plugs the company into its revenue stream, investors may have reasons to be cheerful again.
