Many of you have noted that my postings have been hurried and cursory lately, that will continue for some time. I’ve been dealing with some family issues (my father) and things have been unusually busy over at FM lately as well. That said, I don’t want you to miss the stuff I’ve been reading simply because I don’t have the time to lard it up with my trenchant analysis. Here’s a summary from UBS’s Ben Schachter, for example, on the Feb Comscore search numbers and Google’s performance. Just wanted to pass it along.
Overview of comScore Search data
This report gives investors a monthly snapshot of internet search trends focusing on the 5 largest sites. We issue this report on a monthly basis, focusing on the same data points. We examine U.S.-only paid-search and world-wide search data as provided by comScore.
U.S. Sponsored Click Data for February
Google’s sponsored clicks were down 3% m/m, up 45% y/y, and 6% q/q. Yahoo’s were up 4% m/m, up 25% y/y, and 4% q/q. MSN’s were down 5% m/m, up 95% y/y, and 14% q/q. AOL’s were down 4% m/m, down 38% y/y, and down 10% q/q. Ask’s were down 6% m/m, up 3% y/y, and down 7% q/q.
World-Wide qSearch Data for February
Google’s total searches were up 50% y/y, 2% m/m, and 10% q/q. Yahoo’s were up 34% y/y, 1% m/m, and 8% q/q. MSN’s were up 19% y/y, 3% m/m, and 1% q/q. AOL’s were down 35% y/y, -2% m/m, and -14% q/q. Ask’s were down 4% y/y, flat m/m, and up 1% q/q.
Key Points
For U.S. sponsored clicks, GOOG showed 45% y/y growth vs. 54% y/y in Jan and 62% in Dec (2nd consecutive m/m decline, but was +6% q/q), while YHOO’s grew 23% y/y in Feb vs. 23% in Jan and 28% in Dec. YHOO’s click through rate increased 43bps m/m (Panama went live 2/5). GOOG’s coverage ratio decreased 118bps m/m to 47.5% although the % of searches w/ a sponsored ad and a click was 27% vs. 22% y/y.
Bottom Line
If one were to trade on this news (and we do NOT advise doing so because we think this data is only directionally accurate), it was not a good month of data for Google. Sponsored clicks were down for the second consecutive month and year-over-year growth rates are decelerating at a faster pace than expected.
However, there is an interesting aspect of Google’s February data that we think might be misinterpreted: the coverage ratio is down significantly (118bps m/m and 522basis points y/y). Intuitively, one might think this is a negative for revenue, however, Google stated on its last call that it was proactively lowering the coverage ratio while increasing its RPS. This is possible because while it is showing fewer ads, we think the ads are more relevant and getting higher click-through-rates and most likely meaningfully higher costs-per-click. This is shown by looking at the percentage of sponsored clicks on search results that have an ad. This metric is up more than 400 basis points year over year. Unfortunately, all of this makes it that much harder to quantify how this data translates into revenue for Google.
We also note that, as shown in the charts below, toolbar searches continue to grow in importance, and are growing significantly faster than the overall search market.