It looks like Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) will deliver solid growth when it releases its next earnings report this week. Analysts at Susquehanna Financial Group say their recent industry conference call supports their view that Google is seeing strong ad dollar growth and may deliver a 2% ad dollar beat.
Marketers spend more on Google
In a report dated July 11, 2014, analysts Brian Nowak and Michael Costantini said their conversations with RKG, one of the top online marketing agencies, indicated a 24% year over year increase in their ad spending on Google. They say higher spending on text ads and Product Listing ads, as well as improving return on investments, drove the acceleration in ad spending.
The analysts also say the “91% R-squared” between the marketer’s reported ad dollar growth and actual growth at Google is “encouraging.”
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They say the numbers suggest that Google saw 18.5% growth year over year in ad dollars. That’s in line with Susquehanna’s numbers and about 2% of consensus estimates.
Google sees strong spending on desktop
Interestingly, RKG reported strong spending in desktop advertising, which accelerated to a year over year growth of 14%. That’s compared to 9% growth in the previous quarter. Smartphone spending also grew, by 30% year over year, compared to 29% in the previous quarter. Nowak and Costantini say better return on investment and conversion drove the acceleration in desktop growth. Another part that helped was client’s increasing adoption of measurements across platforms, which the analyst call “finding more conversions.”
Other data strong for Google too
The Susquehanna team believes that ad dollars are the most important metric of Google’s health. However, they note that cost per click and click data are also important. They expect strong pricing and volume trends for the second quarter. They report that overall cost per click likely rose by about 10% during the second quarter, compared to 6% in the previous quarter. Clicks rose 13%, compared to 10% in the previous quarter.
The analysts report that both tablet, which grew by 9%, and desktop cost per clicks, which grew by 16%, drove the strength in pricing. However, they say those gains were partially offset by smartphone cost per click, which fell year over year. They say Google’s Enhanced Campaigns drove the weakness in smartphone cost per click because a number of advertisers began to look more closely at their keyword selection and bidding for smartphone ads. They further note though that while cost per click on smartphones are falling, ad dollars are still accelerating.
The analysts also say that adoption of Google’s Product Listing Ads continues, with spending increasing 69% year over year. That’s about in line with the previous quarter. They say pricing for those ads remains about 3% to 4% higher than non-brand text ads even though they have two to three times higher click-through rates. As a result, they say pricing for the ads could go higher.