Google not so recession proof after all: Monetization down in January

Google not so recession proof after all: Monetization down in January

Summary: The handwringing over Google's 0.3 percent decline in web search paid clicks in January from a year ago is palpable.

TOPICS: Google, Browser

The handwringing over Google's 0.3 percent decline in web search paid clicks in January from a year ago is palpable. Apparently folks are just coming around to the idea that Google may not be completely immune to a slowing economy.

Google shares got whacked on Monday and again Tuesday on worries about comScore's Web search paid click data. In January, Google's search paid clicks were 532 million in January down 0.3 percent from a year ago. In December, Google had 13 percent growth from a year ago.

Meanwhile, January searches for Google's Web sites were up 40 percent from a year ago. Part of this paid click decline in January could be Google's efforts to improve the quality of leads. But few analysts were giving that explanation much play. Mark Mahaney, an analyst at Citigroup, says there could be "a macroeconomic dampening of commercial queries by searchers."

googchart1.pngThat conclusion isn't exactly a big leap to make. Google's most recent quarter showed some fine cracks and the economy was mentioned as a risk factor in its annual report. The argument up to now was that Google could weather any potential slowdown because search advertising delivered better return on investment. Investors (see chart at right) obviously don't buy it. Companies throttle back on advertising--all advertising--if the going gets tough. The other side of the equation is that consumers may be less interested in buying too.

UBS analyst Benjamin Schachter cut his price target for Google to $590 from $650 and noted he's cautious about the company's outlook.

Credit Suisse Cowen & Co. analyst Jim Friedland notes that the January comScore stats "indicates that a slowing economy may be having an impact on Google's growth." Friedland, however, makes an interesting distinction. He maintains that marketers are unlikely to cut by on advertising that delivers results. Following that logic, he argues that Google is seeing a demand shortfall from consumers. The text ads are there, but consumers aren't interested in following through.

"The headwinds from a weak economy may have a greater dampening effect than we initially expected," wrote Friedland in a research note.

Stanford Group analyst Clayton Moran added that the paid search clickthrough rates are down across all search providers. That factoid would indicate that demand is lower due to economic worries.

It's still early to declare anything definitive about Google's monetization rates. Perhaps, these paid clicks are of higher quality. But the signs seem to indicate that Google isn't so immune to the economy after all.

The good news is that if Google truly hits a rough patch we'll get to see how management performs. Thus far Google has been a darling that hasn't reached its awkward adolescent phase. We may be seeing a new phase of development for Google.

Topics: Google, Browser

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  • OMG, the sky is falling...

    Business is affected by the economy. I can see the author now - sitting in a corner, rocking back and forth, hands wringing in abject fear. A source of revenue dropped 0.3%. Everyone should consider Google an immediate sell since they clearly have no hope of ever turning around such huge losses. In fact, any business that has ever shown any decrease in revenues from one reporting period to another should immediately hang it up and start the mass layoffs. It's truly a sad day for Google employees and shareholders around the world.
  • Hold on just a second

    A recession is two quarters of negative growth. So far we have not even had one quarter of negative growth. According to, the economy grew at 4.9% in the third quarter of 2007. The actual numbers for the fourth quarter will be out in two days according to BEA.

    It is entirely possible for growth to slow but never lead to recession. All these people running around saying we are in recession need to step back and wait for at least six months. It will take that long before we can say for certain we are in recession.
  • Wow, a business that is not immune to economic cycles

    The recession deniers can pretend that housing is not in the toilet, that unemployment is not rising, that China and others do not hold mass amounts of capital that they could deny us access to and that our lack of transparency in our financial markets is no problem all the live long day. After all, when you have someone else buy your groceries, mow your lawns, clean your clothes and cater to your whims, it is hard to see that the American middle class is getting creamed and soon all those low interest loans and rebates won't mean squat since people will not be able to access credit and spend more than they earn anymore.

    So investing in a company that makes nothing, serves up ads that have viewer numbers of dubious value, gives away software that few really use and invests in companies like YouTube that serve nothing more than pirated content really is a value proposition. Right?

    Tulips anyone?
    • Never denied anything

      You need to understand what a recession is. It is two quarters of negative growth. The things you mention do not define a recession and can happen in a booming economy. You need a lesson in economics and how they really work.
      • Yes, a recession is offically 2 quarters with negative growth

        I never said it wasn't. Enjoy your life of denial.
        • Learn to read

          I never denied there was a recession. I simply stated that the numbers up to this point do not bear witness to that. Until there are [b]two consecutive quarters of negative growth[/b], you can not honestly go around claiming there is a recession. The other factors you mention can happen in a otherwise good economy and have in the past.

          Enjoy your life of never ending pessimism.
          • Try reality. You're too concerned about a recession when...

            ...a significant slowdown, and it would be tough to argue otherwise, has essentially the same effect. GOOG was priced for a booming economy. An economy that allowed Google to grow by 13% last year. That growth looks to be slowing considerably. So is it any wonder that GOOG is no longer priced the same as for 13% growth? I hope not.
          • The article claims recession, not slowdown. (NT)

          • I don't care about the article. *I* discussed slowdown. (nt)

          • BTW: You may want to re-read the article because it...

            ...refers to slowdowns and not a recession.
  • Live by the ad, die by the ad

    Not that Google's dying. ;) Far from it. But when something on the order of at least 98+% of your revenue comes from advertising you're going to be vulnerable when the economy slows down. Google's gotten a lot of kudos from the media over all their new products in recent years, but very few of those have been monetized effectively making Google still very much a one (technically two if you count AdSense) trick pony.

    Working at an ad agency though, I definitely think there's something to be said for more effective advertising benefiting from (or at least not being hurt as much) by a slowdown in ad spending. As we allocate marketing budgets these days it's already hard to justify some of the relatively high costs of traditional media when we know we can turn around and pump that money into search (and other forms of online media) and get a significantly better return. Most of our clients are mid-fiscal year, but as we brace for cutbacks in next year's budgets I have little doubts search as a whole will likely get a larger share of the pie (although the overall pie might be a good bit smaller too.)

    There's also the natural fatigue and maturity point for an ad format. Banner ad click rates eventually fell from 3-5+% at their peak in the early/mid-90s to WELL under 1% currently. The search ad is now starting to reach a similar maturity point, although it's still a much more robust performer due to its targeting and relevancy. Search advertising isn't going anywhere, but its growth can't sustain the same levels forever.
  • Hey where's DonnyBoy?

    Hey where is everyone's favorite Google fan boi?

    I would have fully expected him out here defending and deflecting.
    • re: Hey where's DonnyBoy?

      He's busy defending and describing how Google and Microsoft should combine all of their file formats into one, simple, open standard that produces incomprehensible gobbledygook... ;)
      M.R. Kennedy
  • OMG....

    Recession proof??? OMG....
    Nothing! is recession proof...
  • 0.3% ! AAAAAH!

    Most of us out here have seen our personal situations worsen by a helluva lot more than 0.3% over the past year or two. Google and its investors should thank their lucky stars they've seen such a trivial impact from the slowdown/recession so far.

    Also: Yes, Virginia, when large numbers of people have no jobs and no money and crushing debts they can't pay, they typically do not click on as many ads and buy as much stuff. DUH.