Google’s (GOOG, Financial)(GOOGL, Financial) declining cost-per-clicks, or CPC, have been a major cause of concern among shareholders. Despite the company recording stunning growth, investors were cautious because of the company’s declining CPC rates and the fact that it missed the analysts’ estimates on both earnings and revenue.
Google shared its earnings for its first financial quarter of 2015 earlier this week. The company reported revenue of $17.3 billion and earnings per share of $6.57. GAAP net income for the last quarter was $3.6 billion. That measures up to to $15.42 billion in revenue and earnings of $6.27 per share in the year-ago-quarter. Analysts expected the company to report EPS of around $6.61 on $17.5 billion in revenue. Although Google shares didn’t plummet after the miss, many bears have started doubting the company’s prospects. However, I don’t think Google investors should worry as the company is diversifying its business and looks set to move higher.
CPC rate decline isn’t a problem
The movement to mobile gadgets has long been noted as the primary cause for Google's decrease in CPC rates. By and by, CPC rates declined last quarter: 7% compared with Q1 2014 and 5% successively, yet there's some more to Google's mobile story. Total paid clicks grew 13% in the last quarter, and the quantity of paid clicks on Google locales increased an incredible 25% - more than making up for the CPC rate decay.
The other piece of the CPC examination includes its YouTube "TruView" promotions. The lion's share of Google's TruView spots are "skippable," which implies they "as of now adapt at a lower rate than advertisement clicks on Google.com." If not for TruView spots, CPC rates would be "solid and developing." If that appears to be irrational, you're not the only one. In any case, it does identify with the positive effect of Google's retooled, always enhancing mobile inquiry endeavors.
Last quarter, network paid clicks dipped 12% y/y. While at first this may appear to be because of absence of mobile adaptation, it is essential to realize that site measurements incorporate clicks and revenue identified with advertisements served by Google over its properties, including YouTube and TrueView engagement promotions. TrueView advertisements have lower adaptation rates than commercial clicks from Google.com and feature promotion evaluating has a tendency to appear as something else over the business. When we avoid TrueView, commercial development in site clicks would've been lower and CPC would have been healthier y/y.
To put it plainly, two key determinations we can make from this are that mobile and CPC in center pursuit keep on gaining quality, and that viewership in YouTube and TrueView are growing at a fast pace. Thus, given the growing exposure, I don’t think Google’s falling CPC rates is a problem going forward.
Conclusion
The company's quarterly performance was great and so was the management’s response to investors’ concern. Google has been, and will continue to be, the king of digital advertising. However, the company is also looking to diversify its revenue streams and for this reason, I think Google remains a top pick in the market.
