Google is Doing Fine, Actually

Comscore let out a report earlier this week that suggested that Google's click-thru rate was dropping, and fed the fire of concern over how Google would do in a recession.  The report sent a shudder through the tech investment community, and sent GOOG down sharply.  GOOG has since meandered, awaiting further info on the report.  Today the Comscore CEO commented on the report and reinterpreted the data in Google's favor.  Rather than signal more evidence of a slowdown, the drop in click-thru's instead reflects an improvement in quality.  Whew! The Surge is still possible ...

The initial report "showed a 7% sequential decline vs. December ‘07, and a flat annual growth in paid clicks for Google. Moreover, the number of paid clicks per Google search query declined by 8% from December to January, suggesting that consumers are clicking less on search ads, possibly reflecting a weaker buying appetite."   

As reported today in SiliconValley.com, the new report by ComScore CEO Magid Abraham and senior VP James Lamberti contend that the dropoff in clickthroughs is likely the result of Google's own efforts to filter out low-quality ads. As Abraham wrote:

[T]he evidence suggests that the softness in Google’s paid click metrics is primarily a result of Google’s own quality initiatives that result in a reduction in the number of paid listings and, therefore, the opportunity for paid clicks to occur.  [T]he reduction in the incidence of paid listings existed progressively throughout 2007 and was successfully offset by improved revenue per click.

Abraham points out that an improvement in the quality of ads wouldn't necessarily translate into more clicks; in fact, the opposite may be true.

If the ads are more relevant, consumers would need fewer clicks to get what they are looking for.  Perversely, a high number of clicks means that the ads are not delivering what the user is looking for on the first try, which induces additional clicks on the second or third try. The benefits to marketers are real, but also counterintuitive. If the users get to what they want with fewer clicks, it means those clicks have a higher conversion rate, or deliver higher quality leads.

Bottom line for investors:  "[T]here is no evidence of a slowdown in consumers clicking on paid search ads for rest of the US search market, which comprises 40% of all searches. ...  It is entirely possible, if not likely, that the improved revenue yield will continue to deliver strong revenue growth in the first quarter."   

Comments

[rc]

not sure about google...

Re: the previous entry on wave counts, the dow, s&p and ndx all appear in a 4th from Oct 11th. I don't know why EWI is purporting to count the dow as in a 2 of a 3. I'm not well versed in EW, but it seems that a wave of lesser degree (i.e. a 2 of a continuing 3 instead of a 4th following the end of a 3), should reflect that in terms of price and time. For example, exhibit smaller moves over a shorter time.

In any case, 2 of a 3 or 4th, the next leg down should be substantial. I'm guessing it'll be the 5th and the end of the move from Oct 11th, and that this will occur this month (already March!).

The RUT never went above 734 (wave 1 and several previous lows). That 734 is a line in the sand. Technical indicators are on sells -- long and medium-term have been, now a new short-term sell. But the short term has been a whipsaw as to be expected.

The NDX is, as mentioned, in a very clear diagonal. Again, I'm not an EW'er, but the pattern, esp. in the NDX of a 4th from Oct 11th is very compelling.

So, all the indices seem lined-up by wave structure and technicals for a major multi-week downturn beginning this coming week (or really, already begun). And if this doesn't occur, then there are clear, nearby resistance levels that'll forecast a major change in trend (surge) has instead begun.