Google's cost per click metric -- a key measure of its core advertising business -- is missing from its most recent quarterly financial report for the first time in 15 years and more than 60 quarterly reports.
Alphabet, Google's holding company, reported disappointing revenues for its fourth quarter of 2019. Surprisingly, Alphabet included financial information about Google's YouTube and cloud IT business for the first time.
While analysts were distracted by unexpected financial data on YouTube and cloud, what was hardly noticed was the absence of a critical metric that lies at the heart of Google's business: Cost-per-click. This measure of how much average revenues Google gets per click has been plummeting 15% or more, every quarter, year-on-year. And this has been going on for more than a decade.
Clicks on ads are how Google makes money. When the click is on its own properties it is through Adwords. On third-party sites, it is through the Adsense network. In its most recent financial quarter, Adwords and Adsense generated more than 82% of total revenues and all of its profitability.
The missing metric will upset financial models. Stock analysts regularly look for cost-per-click and the related paid clicks metric:
- Google -- A Look At Two Very Important Metrics -- Alphabet Inc | Seeking Alpha
- Ad Revenue Threat Raises Alphabet Stock Growth Concerns | InvestorPlace
Yet this critical measure of Google's ad business is missing without any explanation. Likely because Google cannot explain a business model where it needs to outrun massive deflation in its core ad product, by finding yet more places to show badly performing ads. With the shift to mobile platforms the display area for additional ads is shrinking fast, and so are Google's prospects.
With YouTube and cloud revenues, Google is trying to emphasize its operations that are less dependent on advertising and have income from subscriptions. But those businesses make a fraction of what it makes in advertising. And it is impossible to verify their performance without additional information that remains private.
The surprising release of YouTube and cloud revenues, while withholding cost-per-click numbers on advertising, distracts from potential problems hiding within the company.
This blatant move to remove a troubling metric could backfire for GOOG and draw attention to its lack of transparency and its inability to diversify from an ad business that is rapidly deflating in value. Along with the numerous investigations into its business practices, it's not surprising that Google founders Larry Page and Sergey Brin resigned their management positions late last year.