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Google Scrambles as Consumers Move to Mobile

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Despite good earnings, the mobile trend has Google scrambling. Plus, Yahoo drops hints about Alibaba.

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You know your company has an image problem when your announcement of a stock split is greeted with widespread hostility and suspicion. Investors still can't figure out whether Google's (GOOG) decision to reward them with non-voting Class C shares is a bonus or a kick in the pants.

So it's no surprise that the company's generally positive earnings report, issued last Thursday, was greeted with a vote of no enthusiasm, too. The stock is down about $30 a share since then, closing at about $610 on Tuesday.

The problem is inside the numbers. Google's usage is still growing rapidly. Its advertising revenues are growing. Even that all-important number on how many people actually click on the ads displayed on its search pages is growing.

But the return Google is getting for each of those clicks-in effect, the ad rate-is declining.

Two major factors are blamed. First is the shift to mobile computing, where advertising rates are lower, presumably because advertisers aren't yet convinced that it's an effective medium for them. The second factor is more global, literally. All the growth for Google is in emerging markets, and rates there are lower, too.

Google brushes off both of the above as an over-simplification. The company line at its conference call was, basically: This cost-per-click thing is way more involved than that, but we're not going to try to explain it to you, because it's complicated.

Fine. But Google investors can see which way that number is going, and it's not pretty: The price-per-click declined 12% year over year, even while the number of users clicking rose 39%. And that follows a 6% decline in price per clicks a quarter earlier.

A few interesting angles on the story:
  • ThinkEquity analyst Ronald Josey, quoted by MarketWatch, maintains his buy rating on Google but predicts that the cost-per-click factor will continue to decline through 2012.
  • If this is Google's problem, it ought to be Facebook's problem, as the other Internet behemoth that has nowhere to grow but on mobile devices sold in emerging nations. But not yet. A new analysis shows that Facebook's advertising prices, and the number of ads it displays on the site, both grew substantially in the past year, even though click-throughs-that is, the actual numbers of people responding to the ads-declined.
  • Finally, there's the nightmare scenario. Eric Jackson, in Forbes, explains the seven ways that Google today closely resembles Microsoft (MSFT) in 1999.
Web Weekly In Brief:

Speak to Me, Alibaba!
In a conference call on its quarterly earnings late Tuesday, newly-named Yahoo (YHOO) Chief Executive Scott Thompson dropped a hint that he is ready to restart talks with Alibaba about ways to "monetize" his company's 40% stake in the Chinese Web giant.

On Tuesday, Yahoo announced a 28% earnings increase, a pleasant surprise for investors. That was higher than expected, but most of the growth came from the success of its investments in Alibaba and Yahoo Japan, and from relentless cost-cutting at home.

Yahoo is currently in the midst of another round of layoffs and restructuring. Thompson said that Yahoo would focus on its core products and content areas, including news, finance, sports, entertainment, and email.

Build-Your-Own TV
This is almost certainly not a spoof video. Swedish retailer IKEA is introducing a line of products called Uppleva that lets buyers construct their own home entertainment systems, with pieces that include not only the furniture but the television, DVD/BluRay player and wireless speakers. You can buy any number of pieces in various sizes, and then put it all together at home, like a Lego project. It's brilliant, or crazy, or both.

Reuters explains that IKEA is creating the product line in a new partnership with Chinese electronics maker TCL Multimedia.
No positions in stocks mentioned.
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