Google’s “paid clicks” grew strongly again in February, which has given Google bulls hope that reports of a sharp slowdown in Google’s revenue were overblown. Alas, it’s far too early to celebrate.
“Paid clicks” are not revenue. They are a component of revenue. It’s what Google gets paid for those paid clicks that really matters, and Comscore didn’t publish any information about that.
It is certainly good news that Google’s paid clicks didn’t collapse in February (if it had, the stock would be in the mid-$200s), but it would be dangerous to take too much hope away from this report.
Also, the reports of Google revenue and search spending deceleration (at least the ones we’ve heard) suggested that spending did not really begin to decelerate until the middle of February. So March will be important, as will the outlook for the rest of the year.
Most importantly, our main concern about Google’s stock is not this quarter, for which the estimates are already very low. It’s the second half of the year, in which the market is looking for a reacceleration of revenue. No one has yet explained to us where that is going to come from. And in the absence of an explanation, we think more estimate cuts are coming.
Here’s Jefferies’ analyst Yousef Squali, with an explanation of why the Comscore report is excellent news:
• Ad coverage report from comScore for Google validated our thesis
on Google’s relative resiliency:
• Searches with paid ads accelerated in Feb. at an impressive
38.1% Y/Y vs. 29.9% Y/Y in Jan. and 23% avg. in 4Q08.
• Ad Coverage (% of searches with paid ads) was relatively flat
m/m (44.8% in Feb. from 45.0% in Jan.), and also relatively flat vs
last year, suggesting a comfortable level of monetization for the
• Based on our proprietary regression analysis and using comScore
raw data, we believe that Google’s US paid clicks for January and
February were 20%+ Y/Y. While March won’t be out until a day or
two before 1Q09 report, Jan. and Feb. trend is comfortably above
our estimates of 9% growth Y/Y.