Google’s troubling trend of slowing click growth has Wall Street worried the Internet giant will fall short of forecasts when it reports first-quarter results later today.
The latest data from comScore suggests that Google’s paid click growth – or the number of times people click on the company’s small text ads – rose just 2.7 percent in March compared to a year ago.
When combined with previous comScore reports showing paid clicks were flat in January and February, the data puts Google’s first-quarter rate at less than 2 percent. That’s a far cry from 25 percent in the fourth quarter and 48 percent in the third quarter.
Some analysts believe the tepid growth reflects the weakening US economy – consumers are clicking less because they’re buying less – and that will make it tough for Google to meet revenue expectations for the quarter.
Moreover, ad rates would have to climb a lot for Google, which gets virtually all its revenue from paid search ads, to compensate for its slowing click rate, they argue.
Since comScore released its first troubling report in January, analysts have been slashing their forecasts for Google. The consensus estimate calls for earnings of $4.52 a share on revenue of $3.61 billion when Google reports results after the close of trading.
Google doesn’t provide quarterly estimates, leaving it to analysts and investors to divine the signs. The stock, which closed at $455.33 yesterday, has lost roughly a third of its value since the start of the year.
Of course, there’s plenty of debate about the accuracy of comScore’s data and analysts who are bullish on the company argue that people are reading too much into it. There are also questions about how closely Google’s revenue growth tracks the rise in paid clicks.
“There is more to it than just a reduction in clicks,” said Kevin Lee, chairman of Did-It, a search marketing firm. “It’s a deeper issue.”
Some analysts believe that changes Google is making to clean up search results will improve the system for advertisers and lead to higher ads rates.
They argue Google’s click rate is declining because the company is weeding out accidental and poor quality clicks, including purging dubious Web sites that seek to exploit its ad system.
“You could have a scenario where revenue could grow on a healthy basis,” Lee said. “Am I confident enough to buy Google stock? It’s certainly conceivable they could hit their numbers.”