One of the reasons that Google’s shares might have popped about 5 percent in after-hours trading is evidence that the company is stabilizing declines in cost-per-click.
The closely watched metric is a measurement of how much advertisers are paying on average when consumers actually click through on paid search keywords or on other ads. It declined dramatically throughout 2012, raising concerns that the shift toward searches on smartphones was cannibalizing pricier ads on the non-mobile web.
Cost-per-click was up 2 percent quarter-over-quarter, but down 6 percent year-over-year, according to today’s earnings. If you exclude the impact of foreign exchange fluctuations, they were up 1 percent quarter-over-quarter, but down 4 percent year-over-year, according to the earnings call. While the annualized declines don’t look great, they’re far lower than year-over-year declines from the second and third quarter of last year, which were 16 percent and 15 percent respectively.
While Google CEO Larry Page and Senior Vice President Nikesh Arora didn’t really explain what helped slow declines in the last quarter, both were optimistic about prices for mobile ads.
“We’re in uncharted territory in these things because of the rapid rate of change,” Page said on the earnings call. “The CPCs will improve as these devices improve.”
He later elaborated as analysts asked two or three variations on this question (most of which he frankly evaded). “I don’t think this is a long-term problem,” he said. “As I’ve said before, there are a lot of advantages to mobile. You know the location of the user.”
Facebook CEO Mark Zuckerberg has said he’s similarly hopeful about mobile ads. The company has been aggressively pushing app install ads and sponsored stories in the mobile news feed throughout the winter. But we won’t know how well these have done until the company reports earnings next week on Jan. 30. At our conference TechCrunch Disrupt back in September, he said on-stage, “I’m really optimistic. It’s more like TV than the Web. The ads we run on mobile perform better than the right-hand ads do on the site.”