Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG) both have earnings reports coming up this month, and trends look positive for both of them, according to analysts at Susquehanna Financial Group. However, they don’t think Facebook poses any threat to Google in terms of paid search dollars.
Analyst Brian Nowak hosted a conference call with the Rimm-Kaufman Group to talk about the latest trends in paid search, Google Inc (NASDAQ:GOOG)’s Enhanced Campaigns and Product Listing Ads, and advertising on Facebook.
Google’s Enhanced Campaigns create “near-term CPC choppiness”
He said so far Google’s Enhanced Campaigns has been received positively, but they expect to see some near-term choppiness in cost per click. RKG’s clients have said they like the capabilities offered by Enhanced Campaigns because it enables them to more closely analyze their bidding on smartphone clicks and return on investment.
They note that mobile conversion remains poor and smartphone revenue per click is 75 percent lower than desktop. As a result, advertisers are reducing some of their smartphone bids. According to RKG, smartphone cost per clicks is about 30 to 40 percent of desktop clicks, compared to 60 percent in the previous quarter.
Another effect of Google Inc (NASDAQ:GOOG)’s Enhanced Campaigns is the expansion of mobile keyword coverage among clients. They’re bidding on more long-tail keywords with a lower average of cost per click. As a result, Google will likely see incremental cost per click weakness. Susquehanna analysts are estimating a decline of 10 percent year over year, compared to a 6 percent decline in the second quarter. However, they see ad dollars as being more important than cost per click.
Google’s Product Listing Ads still doing well
They said Product Listing Ad adoption keeps rising with about 35 percent of clients’ clicks coming through them, compared to 33 percent in the previous quarter. In aggregate, pricing for the ads is still about 15 percent lower than text ads, although they generate 10 percent higher revenue per click and 30 percent higher return on investment.
According to RKG, this pricing gap is due to sample differences because clients have been buying Product Listing Ads for specific products and models, like specific TV models or SKUs instead of general search terms like “flat panel TVs.” Nowak and his team remains bullish on these ads for the holiday quarter because they will enable Google Inc (NASDAQ:GOOG) to improve its growth in retail ads and monetize a greater percentage of “above-the-fold shelf-space.”
Facebook not threatening Google
The analysts also found that Facebook Inc (NASDAQ:FB)’s trends are also positive as clients are expressing more interest in spending on the social network. Particularly, they’re interested in direct response dollars through Facebook Exchange. The exchange’s pricing is still low while return on investment is high. This shows potential pricing upside to Facebook Inc (NASDAQ:FB)’s model.
However, in spite of the social network’s growth, RKG doesn’t believe clients will take their ad dollars from Google to put them on Facebook. Instead, they see Facebook taking ad dollars from other traditional display companies.