Investors will be looking to see whether Google has turned around the decline in cost-per-click revenue when the company reports earnings after the bell on Thursday.
Although paid clicks—or the number of people clicking through paid search ads—increased 26 percent year-over-year in the first quarter, the cost per click declined 9 percent for the same period.
“People are going to be very focused on CPCs [the amount an advertiser pays Google per user click] because it’s an indication on how they are monetizing mobile. Monetizing that well is important in moving Google forward,” said Shyam Patil, an analyst at Wedbush Securities.
As people increasingly search on their mobile devices, Google needs to make sure that its click growth rate can help compensate for declines in CPC, which are likely to continue for some time, Patil said.
“On an aggregate basis CPCs have been declining for the past several quarters. That’s not reversing anytime soon. We are modeling negative 9 percent this quarter and basically for the rest of the year,” said Patil, who has a neutral rating on the stock with a $600 price target.
However, according to new advertising data from Adobe, Google saw a slight increase of 4 percent in CPC during the second quarter. Click-through rates (CTRs) for the company rose 20 percent, according to the same data.
Also important: This quarter Google will do something it has never done before, which is give investors a deeper look at where exactly people are clicking, and how much each click earns the company. It will break out CPC and click volume growth by specific Google sites (Google.com, YouTube, etc.) and partner network sites, which include AOL and Ask.com. In previous quarters, the company has only reported the aggregate total of CPC and clicks growth.
The company will likely do this at least partially as a way of blaming declining CPC on its partners, Patil said.
“Google is not a very transparent company, and more data is always better, so they are not going to break out this data unless it makes them look better. Clearly, it makes them look positive,” Patil said.
Analysts expect the company to post earnings of $6.25 per share, a 31 percent increase from last year, on revenue of $15.62 billion (increase of 11 percent year-over-year), according to a survey by Thomson Reuters.
Last quarter, the tech giant reported a 19 percent increase in revenue year over year, but its growth failed to excite the market as investors were looking for stronger top and bottom line growth. Declining CPC was the biggest reason for the drop.
While Google’s ad business is its biggest money-maker, the search giant has seen strong revenue in recent quarters increasingly boosted by digital content sales on its Google Play Store, and from hardware sales.
And the growth in revenue coming from its nonadvertising businesses is likely to continue, analysts said.
In fact, Google Play grew 143 percent year over year in May, according to data from the app analytics company Distimo. Distimo also estimated that for the first two months of the second quarter Google Play’s revenue totaled $1.12 billion in gross sales.
And the mobile app store should continue to grow in the triple digits on a year-over-year basis this quarter, Macquarie Capital’s Ben Schachter said in a recent note to clients.
“Google Play revenue should continue to go higher. If you look at the results for the past several quarters, excluding last quarter, increased revenues were driven by the Google Play store and the sale of digital content,” Patil said. “This is definitely becoming more important going forward.”