In a report published November 21, Stifel Nicolaus analysts Jordan E. Rohan, Michael B. Purcell, and Nathaniel Brogadir initiated Google Inc (NASDAQ:GOOG) at Hold amid a slow start to the search engine giant's December quarter.
The analysts highlighted events such as Hurricane Sandy, which caused power outages resulting in fewer clicks Algorithmic preference for Product Listing Ads over more expensive AdWords clicks, as some of the driving factors to the slow start. Furthermore, this is compounded by the fact that the product listing Ads are placed above AdWords links. The other deterrent factor is the emergence of vertical, or specialized Apps that facilitate eCommerce and travel transactions, without Google as an intermediary.
Nonetheless, Stifel Nicolaus analysts believe that the forthcoming four-week holiday stretch marks the climax of on-line marketing, which provides Google Inc (NASDAQ:GOOG) with the opportunity to make up ground lost during the early period of Q4.
The analysts wrote, "there has been much enthusiasm over the potential for earnings upside at Google, due to the introduction of paid Product Listing Ads (PLA). However, recent SEM checks highlight a slow start to Google's Q4 results. We have not checked our international SEM sources yet. Some of the drivers are likely to be overlooked (Hurricane Sandy), while other drivers are a bit troubling, at the margin. Our data points are early and are subject to change if the tone of business improves during this important month for online marketers. We have not adjusted estimates yet".
The analysts have also scheduled two separate investor calls for this week. They are looking to hold one of them with Aaron Goldman, CMO of Kenshoo. The other one will be with Roger Barnette, President of IgnitionOne. Both investors have a view in search spending patterns. The analysts are looking to address PLA, Hurricane impact, and Black/Cyber Monday seasonal spending, during the calls.
Google Inc (NASDAQ:GOOG) faced a decline of 2.5 percent in desktop search during the month of October. However, this was a slight improvement as compared to the levels registered in September, of a 4.4 percent decline. Nonetheless, the data obtained from ComScore Inc. (NASDAQ:SCOR) indicates a strong growth of 16 percent in the eCommerce unit for the month of October. The analysts noted, "growth in search for Google would have to come from mobile; but while Google facilitates an overwhelming majority of mobile searches, Apple's influence means Google is not as much of a toll-taker in mobile as it is in desktop".
Specialized shopping Apps, like RedLaser, eBayInc. (NASDAQ:EBAY), Amazon.com Inc. (NASDAQ:AMZN)'s PriceScan, and RetailMeNot, and Kayak in travel, are slowly gaining competitive muscle as they continue to encroach on the commercial market share in search volume. Notwithstanding, Google Inc (NASDAQ:GOOG)'s cheap product listing ads, introduced to cater for the budget sensitive advertisers, are eating on the highly profitable and expensive AdWords clicks. The analysts believe that this is good for Merchants but bad for Google short term, until the prices for PLA normalize.
The analysts concluded, "in our view, Google's 150 point summer rally was more about the anticipation of upside in 4Q12 than it was about near term pacings for 3Q. After all, Google's 3Q results fell short of consensus estimates. Many believed the upside in 4Q12 would be driven by the introduction of paid product listing ads -- essentially, Google was going to charge a surprisingly indifferent base of merchants for the same clicks that it used to give those merchants for free. So, as we advanced beyond the halfway point in the fourth quarter, we were surprised to find that the growth rate of search spending appeared not to have accelerated, at least so far".
Google Inc (NASDAQ:GOOG) closed at 667.97 on Friday. At the time of this writing, the stock was down $3.82 per share, or 0.57 percent to trade at $664.15.