Google’s digital advertising business has long been the envy of the online business world, and has help turned Google into a business with more than $US56 billion in annual revenue.
But the red-hot growth that once made Google a Wall Street favourite is slowing.
Google’s paid clicks, the frequency at which consumers clicks on its ads, has experienced a sharp deceleration during the past few years, as can be seen in the chart below from Bank of America Merrill Lynch. While Google’s paid clicks were once growing at a rate of more than 40 per cent year-on-year, they are now growing by a more modest 13 per cent year-on-year.
Cost per click, the price that advertisers pay Google every time a consumer clicks on an ad, is also in a funk, although that’s not new.
Some investors blame the rise of smartphones for the trend. The first place that many people visit to get information these days is often a smartphone app and not Google’s search engine. And when consumers visit Web pages on their smartphones, the ads that companies like Google sell are worth less money to marketers.
Google has said that the trend is the result of various factors, including the increasing role of its growing video advertising business, which monetise at different rates than its traditional ads.
Wall Street is clamoring for Google to provide more details about its various businesses, including revenue and profit for its YouTube business. It’s unclear whether Google, which has a new CFO, will indulge Wall Street when it reports its second-quarter results on Thursday. But until Google gives investors new data to chew on though, investors will have no choice but to obsess over its paid clicks and CPCs.