Google released solid financial results last week, meeting expectations on revenue and beating street consensus on the bottom line. However, tucked away in the earnings call was a troubling statistic: cost-per-click growth slumped 12 per cent year-over-year. This follows an 8 per cent drop in CPC in the prior quarter.
The drop is probably the result of a surge in mobile search queries with the growth of smartphones and tablets. While Google reportedly has an ~90 per cent share of the mobile search market, mobile CPC is much lower. Conventional wisdom holds that they will eventually catch up, but we argue in a new note that this is not necessarily the case.
This is because Google’s revenue is determined by advertisers’ ROI, not the number of clicks on search ads. In other words, unless consumers start purchasing more goods because of their mobile devices, CPCs won’t rise.
Photo: Company data, Evercore Group LLC Research
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.