April 12, 2012, 5:12 PM

Google paid clicks jump 39%

The search giant reports that the average cost per click declined 12% in the first quarter.

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Google’s paid clicks during the first quarter ended March 31 increased 39% compared with the same period last year, the search giant reported today.

The average cost per click decreased approximately 12% year over year in the first quarter, and 8% from the fourth quarter of 2011.

Google reported a 24% increase in revenue, to $10.65 billion in the first quarter from $8.58 billion for the same period last year. Revenue from outside the United States totaled $5.77 billion in the first quarter, or about 54% of the Google’s total first-quarter revenue. That compares with 53% in the fourth quarter.

Google-owned sites, such as the Google.com search engine and YouTube, contributed 69%, or $7.31 billion of revenue, up 24% from $5.88 billion for the same period a year ago.

Google today also reported a 19.7% increase in Google network revenue to $2.91 billion, up from $2.43 billion a year ago.

Analysts at Macquarie Equities Research commented that Google had a “good, if relatively uneventful, quarter,” and that its revenue from networked sites performed better than expected. Macquarie also noted that it was significant that Google’s traffic acquisition costs, or TAC, continued to rise as a sign of strong traffic flow. TAC is the portion of revenue Google shares with sites that drive traffic to Google.com.

Google said that TAC increased to $2.51 billion in the first quarter of 2012, up 23% from $2.04 billion in the first quarter of 2011. TAC as a percentage of advertising revenue was 25% in the first quarter of 2012, the same as a year ago.

In a conference call with stock analysts, Google executives downplayed the impact of the 12% drop in cost-per-click and noted that the search giant continues to grow in several areas. “Shifts in cost-per-click and paid clicks don’t reflect the fundamental health of our business,” CEO and co-founder Larry Page said.

“If anything, the recent lower cost-per-clicks present a great opportunity for advertisers to get an even better return on their ad spend,” added Patrick Pichette, senior vice president and chief financial officer. “And lower cost, better return-on-investment attracts advertisers and thus, this is good for Google for the long term as well.”

Executives noted that part of the drop in cost-per-click rates was related to the growth in mobile search, which still commands lower cost-per-click rates. But they asserted that mobile search has long-term potential for revenue growth. Mobile queries “don’t monetize as well because we’re kind of in what search used to be in 2002, 2003, 2004,” Pichette said. “So as these formats kind of continue to get get better and better, we’d expect much better performance on them.”

Page added cost-per-clicks on mobile search may rise as consumers get more accustomed to using features like “Click-to-Call” from search ads. He added that, if advertisers begin to rely more on mobile Click-to-Call to realize more sales transactions from mobile ads, that could lead to higher mobile CPC rates. 

Google executives also said they were addressing three major trends in online advertising. One is a move to run coordinated ad campaigns across multiple viewing screens, including desktops, smartphones, tablets and, eventually, televisions, while also including multiple ad formats, including search, display and video ads. “We’re driving our teams to sell solutions across the entire marketing funnel,” said Nikesh Arora, senior vice president and chief business officer.

The second trend, Arora said, is a sharp increase in the participation of major brand advertisers, including consumer packaged goods manufacturers and movie studios, to make digital media a central part of their marketing efforts. The third trend is in the increased importance advertisers are placing on measuring the effect of advertising across media channels, including search, display ads, mobile and video ads. “We are actually trying to take that one step further and trying to move that measurability into offline sales,” Arora said, without being more specific.

In other areas, Google said that its Google+ social network now has “well over 170 million” people and that its Chrome web browser has more than 200 million users. The company also said that it added 610 employees in the first quarter, ending the quarter with about 30,077 employees.

Google also announced a two-for-one stock split, under which existing stockholders will receive one share of a new non-voting Class C stock for each share of Class A and Class B stock they own. By not issuing new voting stock,  the move will not affect the majority share of voting stock owned by Page and co-founder Sergey Brin, allowing them to retain control of the company, analysts said. The stock split is further explained in a letter from Page in the investor relations section of Google.com.

April Anderson, industry director, retail, at Google, will speak at the Internet Retailer Conference & Exhibition 2012 in June, in a session entitled, “Paid search strategies for the smaller merchant.

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