Google may have surprised us with premature & disapointing results – cause for concern? Not so much.
Last Thursday, Google’s printing, or more correctly, filing company, RR Donnelly, via a subsidiary Edgar Online filed Google’s quarterly reports around 4 hours early. The market went mad – Google shares [GOOG] were suspended after falling dramatically – Bloomberg and CNBC were full of debate about litigation by investors who may have suffered losses due to the premature release. It went on. And on. The lesser part of the frantic discussion was Google’s almost 20% drop in profit, and the market wobbled because the results were missing comment from Larry Page; comment that would have been re-assuring for the key institutional investors. This comment was obviously missing because of the premature release – but the market hates surprises. Regardless of later explanation.
Only a month ago I wrote about a nunber of companies – the ones I believe that have the best market cap growth potential for 2013 – Google is one of these. Google’s current wave of innovation is its best ever – from Glasses to Chromebook they’re in The Zone. But, it’s the ads that pay the bills. And the bills are getting bigger. Employee levels have balooned following the Motorola acquisition; R&D and innovation cost money. Google are still winning the online advertising batttle, but the revenue Google get per click – the money that customers are willing to pay for a potential customer to click on their ad – is falling. This contributed to a small ‘miss’ in operating profit. I would say that’s just indicative of market conditions globally. New markets are opening up for Google – but they could take another year or so to mature – the key existing markets for Goog’e’s AdWords program are full of careful consumers and slimmed down businesses tryng to ride out a recession. Perhaps the most challenging element to emerge for Google is regarding the change in the way we consume the web. There is less space – less real-estate the (new to) web-marketing people used to call it – available for advertisments now. With tablet and mobile usage growing and accounting for as much as 20% of web traffic, there simply aren’t as many opportunities as their used to be show ads to consumers. Google still do better than Facebook in earning revenue from mobile users – the Google AdWords ‘Click to Call’ was clever development – appealing to advertisers and yet inobtrusive to consumers using mobile. But it’s that area of growth thatthey need to address. Maybe we’ll see more focus and innovation around paid listings – maybe pre-roll ads on premium content (or resultss). Would consumers balk at Flash SMS style messages before or after a search ‘Hey, we noticed you’re outside Starbucks’ Scan this QR code for a free muffin with your coffee. Google’s re-aligment as a content company means they should have the opportunity to deliver relevant ads at the right time, even on mobile devices. This is a no more than a correction. It was an expensive quarter. They’re doing good.