Google Slides As Cost-Per-Click Tumbles

Google, aka Alphabet, reported Q2 earnings that beat on the top and bottom line, reporting EPS of $5.01, above the estimate of $4.45, and earnings per share excluding the $2.7 billion European Commission fine of $8.90, also above the $8.25 expected. Total Q2 revenue of $26.01 billion rose 21% Y/Y, and also beat consensus of $25.64BN.

Yet while Google's top and bottom line results were both impressive, the reason why the stock was down as much as 3.6% in the after hours appears to be that while Google reported paid clicks in Q2 surged by 52%, well above expectations of a 35% increase, and more than the 44% in Q1, Google's cost-per-click - which measures what advertisers pay when people click on search ads that show up alongside the results served up by Google’s search engine - tumbled 23%, a drop from the -19% CPC reported in Q1 and down even more from the -15% in Q4 2015.

In other words, more people are clicking on ads, but those clicks are costing advertisers less money per click, and generating less sales for GOOGL. In short, a potential revenue mix concern where Google is compensating for lower pricing power (due to the encroachment of Facebook?) with higher ad volumes.

One thing is certain: the CPC trend is certainly not Alphabet's friend:

Additionally, Q2 Revenue ex-Traffic Acquisition Costs was $20.92 Billion, modestly below the $21.07 billion consensus estimate.

Some other details:

  • 2Q Other Bets revenue $248 million
  • 2Q Other Bets operating loss $772 million
  • 2Q Google advertising revenue $22.67 billion
  • 2Q free cash flow +$4.57 billion

While the stock initially responded favorably, surging to new all time highs above $1000, the latest print was down 2.5% as the market digests the potentially disappointing revenue mix data.


mkkby zzzz88 Tue, 07/25/2017 - 12:47 Permalink

How can clicks be up but ad rates are down?  It makes no sense.  More clicks means the ads are MORE valuable, not less.This proves 90+ percent of those *clicks* are fake.  I've never known anyone who EVER clicked an ad.  I use an ad blocker, noscript and a cookie blocker.  It I didn't pages would take so long to load the internets would be useless.Stop using social media and live like a human being again.  I see young snowflakes taking so much time photographing themselves they are barely noticing the world around them.  Such a waste.

In reply to by zzzz88

Donald J. Trump Rick Cerone Mon, 07/24/2017 - 18:16 Permalink

Whenever you do a search, the top listings are paid ads, which I believe if you click on it, google gets paid.  Google skims off what you already knew you wanted.  I avoid the ads and continue down the list to the one not marked ad.  I have found lately I have to go farther down the page to avoid the ads and sometimes the entire first page is nothing but ads.

In reply to by Rick Cerone

Pernicious Gol… Mon, 07/24/2017 - 16:47 Permalink

Sometimes waiting for things to download, I open a browser tab, search on "car accident lawyer" or some such, and then click through to a few of the results, in order to ring up some $10 charges for law firms. Those of you who understand Google's business better - how can we users start increasing Google's costs similarly?

nidaar Pernicious Gol… Mon, 07/24/2017 - 16:56 Permalink

By doing just that, you are increasing Google's costs too. As the ratio of clicks to sales (conversion ratio in sales / marketing parlance) increases, clients become less willing to pay for ads because they think they are not as effective. In fact, what is described in this article as more clicks but less pay per click gor Google coluld be a result of less people buying stuff from online ads. 

In reply to by Pernicious Gol…

Art Van Delay (not verified) nidaar Mon, 07/24/2017 - 17:35 Permalink

A few years back, right at the beginning of mobile internet usage, I was making 100s of Ks of $ faking traffic&clicks ripping off an ad company and their advertisers (like Ashley Madison or dick pill selling ones).Wasn't Google though, was even worse.. they deal with XXX ads.. ExoClick.Those were the days. 25K/month just having some software on autopilot. Feels so good to rip-off scammers.

In reply to by nidaar

Confundido Mon, 07/24/2017 - 16:50 Permalink

So, GOOGL makes money and has a P/E of approx. 30 to 33x. And they are behind many of the revolutions taking place in tech. But NFLX, which make no money and burn cash and has P/E above 150x keeps growing....

Deep Snorkeler Mon, 07/24/2017 - 16:53 Permalink

Wait... What?More people are clicking ads.. and generating less sales.Has the American economy morphed into a giant click-fraud operation?I bet these ads are never seen by human eyesand never receive a human-generated click.I think internet advertising validates itself.  

monopoly Mon, 07/24/2017 - 16:59 Permalink

I have never, in all the years I use GOOG, clicked on an ad. I use is as a search engine for information only. Do not understand how they make so much money on clicks. Somehow, I do not think that will help bring back manufacturing jobs. They are gone, period.

delivered Mon, 07/24/2017 - 17:10 Permalink

I actively support a number of companies operating in the DTC/ecommerce space that for the most part spend all of their social media advertising budgets on FB/IG, Google, and to a lessor extent, other relatively small companies (e.g., Yahoo, LinkedIn, etc.) with display advertising strategies. At least 90% of these companies' social media spends are dedicated to FB/IG and Google which I'm guessing is the same strategies a number of DTC companies are using.In a nutshell, here are the problems being encountered and the reason why so many DTC/ecommerce companies are going to be vaporized over the next 12 to 48 months:- Google and FB/IG have gotten greedy and raised rates too high. There's just no way these DTC companies can turn a profit based on their operating gross margins (which are lower than most people realize once all 3PL, freight/shipping, merchant fees, returns/refunds, etc. are accounted for) combined with elevated CAC/CPA levels. Basically, Google and FB/IG are biting the hands that feed them.- Too much advertising is polluting these social media advertising channels now and is becoming very cluttered, confusing, and overwhelming to the users. Either more people will turn on Adblock type features or simply tune out to the advertising message.- Traditional advertising media including TV, radio, print, billboards, etc. are becoming more affordable and in certain instances, more effective (in terms of reaching the customer). The rebalancing of media spends and pricing is just beginning.- People still need to remember that while Amazon is huge, for most product categories, 80+% of the unit sales still occur "off the shelf" at the B&M level. While DTC/ecommerce will continue to gain marketshare, it is beginning to decelerate as B&M retail adjust their business models to adapt.What we're seeing is a rebalancing in the market that is responding to a consumer that is changing/adapting to the fact that they have less to spend as a result of the triple headed "H" monster (i.e., increasing healthcare, housing, & higher education that are hammering the consumer which is seeing almost no real wage growth). B&M retail is experiencing the pain first but trust me when I say, DTC/ecommerce companies will be following soon.

truthalwayswinsout Mon, 07/24/2017 - 17:18 Permalink

Wait until the alternative sites start coming online for conservative business owners.  When they do, google, facebook and amazon will alll go under. 75% of all their business comes from conservative companies and once they have a choice the FAGS are dead.

Vardaman Mon, 07/24/2017 - 17:23 Permalink

I use ad blockers and totally ignore all the crap that still gets thru.  There is no techno fix Gurgle can apply to that sort of behavior.  Fucked, they are...

Non-Corporate Entity Mon, 07/24/2017 - 18:04 Permalink

Eric Schmidt's wife announced via tweet the "hiring" of Dr. Eric Braverman at Alphabet just a few months ago, although to my knowledge he is still MIA. Has his whereabouts and safety been confirmed? If not then who gives a $hit about Google stock?!?!?