Google Inc Continues To Benefit From Strong Paid SEM Trends

Google (NASDAQ:GOOGL) (NASDAQ:GOOG) is scheduled to release its next earnings report on or around July 18, and analysts at Wedbush expect the results to be solid. In a recent report, they detailed their takeaways from the second quarter search engine marketing conference call with two leading search marketing agencies.

Paid search trends remain solid

In a report dated June 27, 2014, analysts Shyam Patil, James Dix and Andy Cheng said the commentary from Covario and Rimm Kaufman (RKG) said paid search trends during the first quarter remain solid. RKG saw 24% year over year and a 27% quarter over quarter increase in paid search spending during the second quarter. That’s a little ahead of expectations and an acceleration from the previous quarter’s 17% year over year increase. Covario noted a 20% year over year growth, a slight deceleration from the first quarter’s 25% growth in the previous quarter but slightly ahead of expectations.

The two firms also noted growth in clicks and cost per click. RKG saw 12% growth in clicks and an 11% growth in cost per click. Covario saw an 18% year over year increase in clicks and a 2.5% increase in cost per clicks. The firm also saw a 15% decline in impressions because of bigger ad units that resulted in better engagement and higher click-through rates.

Good news for Google

RKG said Google alone saw 24% year over year and 25% quarter over quarter growth, compared to year over year growth of 17% in the first quarter. The firm said Google’s clicks rose 9%, while its cost per click rose 13% year over year.

The Wedbush team reports that Google’s Enhanced Campaigns platform is still viewed as neutral to positive for overall near-term search spending but positive in the long term. They note that while it is still in the early days, both of the firms they spoke with They also say that overall, Enhanced Campaigns has driven more investment in mobile, as they think the budget allocation to mobile is increasing beyond their expectations, although sometimes this has been at the expense of desktop spending.

RKG also noted that feedback on Google’s Product Listing Ads continues to be positive. The firm noted a 58% year over year increase in spending on these ads. Clicks rose 28%, while cost per click rose about 5% higher than comparable text ads. Covario found a 30% increase in Product Listing Ad spending and a 5% increase in cost per click on the ads.

Google enters web hosting business

On a side note, Google recently announced that it is entering the web hosting business. Investors have generally seen this as a negative for Web.com (NASDAQ:WWWW). Shares of the web hosting company declined as much as 2% today. However, BWS Financial analysts say Google’s entry into the market does not mean Web.com’s fundamentals will stop driving its growth.

They say Google’s pricing for web hosting isn’t much different from the low cost plans Web.com is already used to. The company has already been growing its subscriber base even though Google traffic has always pushed toward its competitors. BWS analysts say Web.com’s value-added products should be the ultimate factor in generating more customers.  They think the company is still on target to generate about $125 million in free cash flow to reduce its debt balance, which would make its stock look more attractive.