Summary:A couple of weeks ago, Google's earnings we mistakenly released prematurely and the revealed revenue dip caused a panic among investors. Ever since it seems like every day Google has released some new gimic that seems geared toward increasing ad revenue. But do they really have anything to be worried about in the first place? If so, how worried? And will any of these "fixes" actually change anything?
You probably already heard about Google recent stock panic after someone mistakenly and prematurely released a disappointing earnings report, but here's the gist if you didn't:
Google’s stock plunged after it released its third-quarter earnings report early, apparently by mistake.
The company’s stock was down 7.4 percent in afternoon trading, at $699.51. Google was set to report its results after the market closed. The sudden drop in the stock led its trading to be suspended on NASDAQ.
In the regulatory filing, Google said it earned $2.18 billion, or $6.53 per share, during the three months ending in September. That compared with net income of $2.73 billion, or $8.33 per share, last year.
The earnings would have been $9.03 per share, if not for Google's accounting costs for employee stock compensation and restructuring charges related to the acquisition of Motorola. Analysts polled by FactSet were expecting $10.63 per share, on average.
Revenue climbed 45 percent from last year to $14.1 billion. Excluding compensation for websites that generate traffic for Google's ads, revenue was $11.33 billion. Analysts were expecting $11.5 billion.
So it all boils down to making $0.17B less than expected? Granted, falling short of expected earnings by $170M isn't chump change, but as a percentage it's not even 1.5% of the $11.5B that investors were looking for. To me, $11.33B doesn't sound like anything to be upset about, but I'm not a serious Wall Street expert. The Financial Times digs a little deeper and seems to shed some light on investors' larger concern - Q3 net income may have been $2.18B, but that was down 20% from $2.73B in in Q3 last year.
The Financial Post reports that Merrill Lynch has downgraded Google stock for the first time in 6 years and zeroes in on why revenue has dipped:
For the fourth consecutive quarter, Google reported a decline in average CPC, a critical metric that measures the price advertisers pay the company.
You'll recall that mobile ad revenue, or lack thereof, was what led to the Facebook's stock tumble in their first quarter after IPO. Per share value at FB was eventually cut in half, however it jumped 20 percent just yesterday on news that 14 percent of their revenue now comes from mobile ads.
I wouldn't go as far as to say Google should take lessons from Facebook, because I think in the grand scheme of things, Google is better at virtually everything it does including and probably especially advertising. Even with the revenue concerns, Search Engine Land points out that Google Adwords is bringing in $100M per day! The one area FB wins is as a social network, but the only reason people aren't using Google+ instead is because everyone already uses FB. Hard to transition a billion people away from something familiar. Regardless, "mobile" is a new advertising platform that these companies will have to figure out.
Is Google the Next Yahoo!?
CNBC actually recently spoke to an analyst, Eric Jackson, who is making the alarming assertion that Google could "disappear" in 5 years. Mind you he's clearly hedging by using the word "could", but it's still a pretty shocking claim. He elaborates by saying he means "disappear" in the sense that Yahoo! has "disappeared". I'm not sure I would go that far in describing Yahoo!, but I understand the point - even internet behemoths like these can be brought down in this fast-paced, constantly changing world. In fact I've made similar claims myself - I can see Facebook "disappearing" in just a few years, particularly if Google+ plays its cards right.
Anyway, Mr. Jackson is right when he says Google's decline "could" happen, but why I don't think it's likely - ad dollars will eventually go where web users are. The claim that people don't want to spend their ad dollars on mobile may be true, but if that's where the consumers are, they will eventually be forced to shift their ad dollars. What about another competitor beating Google to the punch, you ask? Who? Bing? Get real. Besides, it's not as if they're immune to the same issue. In fact, in my mind, the nail in the coffin of this Google "disappearing" theory is tied in to something Jackson himself points out - mobile ads degrading user experience. I agree that they can/do degrade the experience already on FB, but again - what's your alternative. In Google's case, it's not as if some other search engine is lurking in the shadows with some master strategy for displaying ads in a way that won't upset users, and all they have to do is wait for Google to stumble and then swoop in! If anything, the big G is light-years ahead of anyone who would even dream of taking their place.
Sure, "it happened to Yahoo!", but that's because Google came along and was better. You expect me to believe something is out there right now that can best Google? At this stage of the game I just don't see it, especially with Google expanding into so many areas like mobile phones, tablets, computers, operating systems, etc.
Google Adwords Panicking?
The reason I actually wanted to write this post today is to highlight some Google moves this week that I interpret as panic. It seems very uncharacteristic of them, and in my opinion the panic isn't warranted, but I don't know how else to describe it.
Google to Combine Mobile & Desktop Ads - 180?
The first freakout I saw this week was detailed in this Search Engine Watch blog post that details a major shift coming soon to Adwords - the combining of desktop and mobile ads. Here's how Google CEO Larry Page explained the move:
“As more users upgrade to Google+, more users are enjoying amazing experiences across devices. In the same way, we want to make advertising super simple for customers,” Page told investors. “There are separate campaigns for desktop and mobile right now. This is more arduous users and mobile opportunities possibly get missed. Advertisers should be free to think about their audience while we do the hard work of dynamically optimizing their campaigns across devices.”
First I just have to take issue with his claim that there are separate campaigns for desktop and mobile. They often recommend this and in many cases it's a good idea that allows you to optimize separately, but it's not a forced setting. In fact, despite all of the specific targeting options available (see screen shot below - click to enlarge) "All available devices" is actually the default setting.
Again, Google is constantly encouraging us to make sure we run separate campaigns for mobile, but by default campaigns are set to run on both desktop machines and mobile devices. So at first glance this "change" they're announcing doesn't really seem like anything new, although if you read the whole SEW post/critique, there does seem to be some sort of shift, it's just not 100% clear to me exactly what they're changing. It sounds like they'll want us to write separate mobile and desktop ads within the same campaign and Google will just serve up the appropriate one, rather than just trim some of the text as it does now when desktop ads appear on mobile. Whatever the changes, my point was that Google is doing a 180 here. SEW nails it here:
Just over a month ago, Google told us, “Consumers seeking retail information are looking for things they can act on immediately. They still prefer to do deep research, read reviews, and make big purchases on desktops; making contact and taking action are their priorities when mobile consumers are on the go.”
That was from their What Users Want Most from Mobile Sites Today study. My, how things have changed.
And points out that this will be a tough sell, especially for advertisers:
Google will have their work cut out for them convincing advertisers that mobile ads are any more effective if they can’t tell their performance apart from desktop ads. Investors aren’t apt to go for less transparency, either. As much as the “users want the same on mobile and desktop” mantra was repeated yesterday by Page and other Google execs, it just doesn’t make it so.
Time will tell what this change will actually mean for all parties involved, but the timing and the fact that it's all about "mobile" certainly indicates to me that this is a reaction to the revenue issue that resulted in the stock tanking just days earlier.
Dynamic Search Ads
Then came the announcement last Thursday that Dynamic Search Ads, previously in beta, had been rolled out to the public. Under different circumstances, I'd say this was just a new feature release, but can you blame me for being suspicious given the timing? By the way, if you dig through some of Google's materials, you'll find that DSAs are another automation feature in Adwords. While some, like daily budgets, are great, I'm always skeptical of decision making by machines. I'm testing "Conversion Optimization" automation on one campaign right now, but I'm still pretty skeptical.
In addition to the other big moves we just went over, I got two emails from Google Places last Tuesday, each of which is pushing Adwords Express with the promotions "free setup support" and "$100 when you spend $25". I received these because emails tied to Google Places listings for a couple of local SEO clients get forwarded to me. These types of emails aren't unheard of, but they aren't exactly common either. Again, consider the timing. In fact, given that Google Places is all about "local" and "local" is huge on mobile, I can see this being an area they start to push hard on.
Google Chrome for Windows 8 - GetYourGoogleBack.com
I'm glad I delayed publishing this post last Friday because we now have another example of Google showing signs of nervousness - a website (GetYourGoogleBack.com and a video dedicated to showing users how to get the Google Chrome app on Windows 8 and how to make it your default browser. (h/t SEO Roundtable)
In fairness, this is likely something they've been planning for some time and not a reaction to the earnings news, but it comes off as a little desperate when you look at all of these changes in totality. I also think a little worry is warranted on their part here due to a shrewd move on Microsoft's part here. Past versions of Windows have obviously shipped with Internet Explorer as the default too, but the major change with Win 8 is that it now relies on apps and that by default the app forces you to search Bing from your desktop.
The process by which users can get Chrome on their new computers isn't actually difficult, but it's different and new, so I think Google is justifiably concerned that some people might put off figuring out how to get Chrome back. And what if those people actually start to like their experience on Bing? Loss of any search engine market share would likely mean ongoing revenue issues for Google (if a smaller percentage of users are using your engine, a smaller percentage will be clicking your ads).
So what should we make of all of this? Google clearly remains the undisputed king of search, but increased mobile usage is causing revenue issues. But mobile advertising issues apply to all competitors as well, so I'm not sure how big of a concern this should be. I also think Google has enough smart people working on ways to overcome these issues that they'll have it sorted out before anyone else.
The Windows 8 issue is more of a cause for concern, in my opinion, but if people like Chrome, I think they'll go looking for it the same way they always have. Google just better hope that the new Bing default web search app isn't fast and doesn't satisfy searchers needs before they go out looking for Chrome.
The bottom line is that I don't think Google needs to be in panic mode, yet, but they should be making plans to deal with these obstacles. In fact that may be all that we're seeing, but the fact that they're throwing all of this at us in just the last week, following the stock value drop, seems to indicate they're being reactive, rather than proactive, even if that's not the case.