Google's Search Business Is Healthier Than Mr. Market Thinks It Is
In a report published Tuesday, Cowen And Company analyst John Blackledge highlighted key findings from a conference call with Ben Kirshner, CEO of EliteSEM in which Google Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) Search trends was the focus of the call.
EliteSEM boasts 180 clients and more than $300 million in U.S. search spend. The firm noted that its ad spend on Google was up 15 to 20 percent year-over-year in the second quarter as Google Search "continues to provide the best ROI for advertisers." Moreover, Kirshner noted that Search budgets are expected to grow at a similar rate through the end of the year.
The increased spend in Search is largely driven by higher Mobile spend, which is further supported by "significant" higher Mobile volumes, rising Mobile CPCs and "strong" Mobile PLAs growth. At the same time, Desktop spend is "flattish" while Tablet volumes are "flat."
"Despite declining Desktop search volumes, paid clicks are still doing very well as Google continues to innovate and improve overall conversion," the analyst argued based on his conversation with Kirshner. "PLAs continue to perform very well and drive growth, essentially picking up the slack from Desktop, especially on Mobile."
Blackledge noted that Mobile CPCs are still at a 30 to 35 percent discount to Desktop versus a 50 percent discount a year ago. The analyst also suggested that the discount is expected to disappear and Mobile will reach parity with Desktop "at some point in 2016" rather than Kirshner's belief that parity will be reached in the bottom half of 2015.
Finally, Kirshner argued that a reduced functionality within Enhanced Campaigns and a slow adoption to increase the "mobile multiplier" is holding Mobile CPCs back. He noted a mobile supply and demand "conundrum" in which a Desktop search could result in five to six paid ads and PLAs, but only one to two Mobile paid ads for the same search on a smartphone due to a smaller screen.
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