Google (GOOG) Image Ads Might Lead to Reduced Q4 Ad Spending

January 17, 2013 11:13 AM EST
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Google's (Nasdaq: GOOG) quarter-over-quarter ad growth might not reach many Wall Street expectations. In a report today, analyst at Evercore Partners noted signs of softness in desktop search. This softness is related to increased mobile usage and format changes, including efforts to highlight image ads or PLAs. The image ads are related to a new paid service offered by Google. The modified thesis is based in part on comments from reputable ad firm SearchForce, which monitors spending trends.

"Based on the spending under management, SearchForce is tracking a sequential decline of 2.4% q/q in 4Q12 compared with negative 3.5% in 3Q12, which is well below our +4.4% q/q expectation for fourth quarter," said analyst Ken Sena.

The decrease in spending could be a result of a strange supply-demand dynamic.

"The formats compete with traditional sponsored links, thus dividing bidders into separate pools, thinning competition, and weighing on pricing. In addition, given that campaigns are now by SKU vs. by keyword, maximum bids tend to be set artificially low until more is understood around conversion," said the analyst.

Additionally, PLAs have a higher conversion, and thus fewer clicks, thinks Sena.

Sena thinks that increase mobile traffic is too small to offset the decline in desktop advertising.

Evercore reduced Google's ad revenue growth estimate by 3 percent to $11.7 billion, or 8 percent quarter-over-quarter (vs. 11.5% previously), and 15 percent year-over-year (vs. 19% previously).

Evercore does not have a rating Google.

For an analyst ratings summary and ratings history on Google (Nasdaq: GOOG) click here. For more ratings news on Google click here.

Shares of Google closed at $715.19 yesterday.

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