Google’s paid clicks are dropping

Google’s stock took another big hit today on fears that it won’t be able to meet Wall Street’s expectations. Market research firm comScore published a report today that indicated that the amount of paid clicks on Google’s search engine dropped 7% month-over-month in January and remained relatively flat with the same period last year.

In its fourth-quarter financial results, Google indicated some concerns in this area, though at the time the company blamed the slowdown in paid-clicks to technical changes designed to reduce the number of accidental clicks by users.

Analyst Lee Westerfeld of BMO Capital Markets slashed his price target on Google’s shares to $590 from $690 in response to the comScore numbers, along with maintaining a market perform rating.

“The issue relates to the degree of multiple-compression risk under revenue- decelerating circumstances,” Westerfeld wrote in a report.

Robert Peck of Bear Stearns noted that the click-through rate was the lowest since comScore started reporting this type of data.

“While this is one data point for domestic only and from one source, which may or may not be accurate, it is a concerning data point and somewhat reflects what we have heard from [search engine marketers] — that they were not seeing a high volume of clicks from consumers possibly due to the economic slowdown,” wrote Peck, who rates Google as outperform with a $650 price target.

Some analysts weren’t quite so worried. Marianne Wolk of Susquehanna Financial Group noted that Google is taking steps to improve the quality of its links and click-throughs, which may result in some lower revenue in the short term but improve the business in the long term.

A drop from December to January might be normal due to the holiday season but the fact that there was no growth compared to a year ago is pretty disappointing.

There could be several reasons for this:
– comScore’s data may be wrong.
– Google is trying to improve click quality to boost advertiser’s conversions which may eventually lead to higher bids per click
– A change in consumer’s behaviour due to the economic slowdown in the U.S.
– Companies may be reducing ad spending.
– Web users may be developing a text link blindness, just like with banner ads a couple of years ago.

Or it could be a combination of all five reasons. GOOG is currently trading around $457 which is one of its lowest levels since April 2007.


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