Two updates on Google’s recent trends before the company reports Q3 earnings on Thursday. The first, query growth for the month of September, is a slight positive. The second, an anecdotal report on retail search spending in September, is potentially ominous for Q3 results and beyond.
First, query growth. Doug Anmuth, late of Lehman Brothers, now of Barclays, jumped on the monthly Comscore report that was released this evening after the close. (Bear in mind that these are U.S. query growth stats, not revenue or paid click stats. They have at best a loose relationship to revenue.)
comScore U.S. query volume & share data out after close Tues. night is a slight positive for GOOG. Query growth reaccelerated to 35% in 3Q (fastest growth since Jan.) & share now at 62.4%, but share down M/M in Aug. Overall industry query growth of 21.7% is fastest since 3Q07. Query accelerated in September, potentially from back-to-school, Presidential campaign, & credit enviornment.
- GOOG 3Q query vol +35% Y/Y, fastest qtrly growth rate in ’08. 3Q share @ 62.4%, +80 bps Q/Q. Sept. queries +38.6% Y/Y, fastest growth since 11/07, but share -80bps to 62.2%.
- YHOO 3Q query vol +3.6 Y/Y, share -70bps to 20%. Sept. queries +7.1% Y/Y, fastest growth since 07/07, share @ 20%, +40bps M/M.
- MSFT 3Q query vol. -8.2% & share -40bps to 8.5%. But Sept. queries +3.0% & share @ 8.4%, +10bps M/M.
- Ask 3Q query vol. +29.9% & share +50bps to 4.9%. Sept. query growth of 45.5% & 5.4% share are best results since Y/Y comps avail (04/07). AOL 3Q qry vol. +15.7%, share -20bps to 4.2%.
- No changes to estimates. Projecting 3Q GOOG net revs of $4.02B(+3.5% Q/Q), EBITDA of $2.3B, & PF EPS of $4.67.
So that’s fine. And overall, the anecdotal search spending reports for Q3 we’ve seen were also fine. But there was an alarming point made by Roger Barnette, the CEO of SearchIgnite, in an RBC study this week.
Specifically, search spending by US retailers dropped off sharply in the month of September as the economy weakened. This is probably not massively material for Google’s Q3, but if the trend continues, it could have a significant impact on Q4. It also provides further evidence that Google and search spending are not, in fact, immune to the recession.
RBC analyst Ross Sandler:
Our proprietary RBC/SearchIgnite study highlights the following key trends:
1) Paid search trends in the US held up in 3Q, with same-advertiser-basis sequential growth of 1.6% (vs. 1Q at -4.2% and 2Q at +3.3%);
2) Retail search advertisers increased spend y/y, but growth decelerated intra-quarter as the economic backdrop deteriorated; and
3) Google continues to increase its market share of search
advertising dollars, now controlling 72.2% of advertiser budget, up modestly
from 70.8% in 2Q08, and at the expense of Yahoo and MSN.
Retail Shows Meaningful Deceleration Intra-Quarter: The dataset shows an interesting trend across the retail client-base whereby July spending growth of ~20% tapered off to up modestly y/y in August and dropped to negative 10% y/y by September. The deterioration could be a function of the worsening macro environment taking a toll on consumer behaviour and, subsequently, on search budgets. Despite the drop-off in spend, conversion rates and average order value trends held up throughout 3Q08.