Goldman: Google Price Target Intact Given Positive Click Fraud Results

Click fraud is perhaps one of the biggest threats to the business of Web search giants like Google Inc. (GOOG) and Yahoo Inc. (YHOO).

The violation, which typically occurs when a person or computer program tries to trick Web advertising systems into thinking users are clicking on Web ads, has the intent of generating pay-per-click revenue.

But click fraud remains somewhat of a mystery given the lack of information regarding its prevalence in search results.

Google recently addressed this issue on its AdWords blog, saying the actual impact of invalid clicks is less than 0.02% of all clicks.

This should come as good news for its advertisers.

“Bottomline, this quantification and disclosure illustrates the fact that click fraud should not be a significant concern for Google investors given its small size relative to overall clicks and due to Google’s proactive measures to prevent it,” Goldman Sachs analyst Anthony Noto said in a note to clients.

He maintained his “buy” rating on Google shares and $620 price target, which represents upside of roughly 38%, adding that this news significantly reduces risks to his estimates on Google and the company’s growth outlook.

GOOG 1-yr chart:

Comments

[Sufiy:]

Google TA Double Top Reversal is confirmed

sufiy.blogspot.com/200...

2007 Mar 05 05:31 AM

[Jeff Howes:]

Actually, Google did not say that the click fraud rate is 0.02% at all. What they said was "..less than 0.02% of all clicks are reactively detected as invalid". If you read their statement carefully you will discover that key information is missing, and without it, a calculation of the actual click fraud impact is impossible.

They define "reactively detected as invalid" as invalid clicks that were not caught by their filters, were billed to the advertiser, were then complained about by the advertiser, and finally, were determined to be invalid by Google upon further investigation. That is not hard to believe at all, because if Google did not detect a click as invalid the first time, the chances are that they will not consider it invalid upon a complaint either. They are still limited to their existing detection algorithms regardless of whether or not an advertiser is complaining.

Once you remove all of the potentially reportable clicks that are
never reported, you are most likely already well under 1% of total
billed traffic.

Next, out of the small number that ARE submitted by advertisers for
further review, you have the vast majority of those which are
declined by Google. This is a number that they do not seem to be
disclosing and without it, you cannot complete a calculation of their
0.02% claim. We know from our experience of filing claims that only a
small fraction of the reported invalid clicks that have previously
been billed are later refunded. Google has a series of standard,
canned response letters that lower level support staff use for the
first, second, and third inquires regarding specific cases. It seems
that only high volume customers even make it to the next level, where
a more knowledgeable rep will investigate the claim. At this level,
they will look at the traffic in more detail, but the most common
response is that "most" or all of the invalids were "already filtered
out" by their system. Yet, one of our biggest gripes is that they
will not provide a click log or list of exactly which clicks there
system has discounted, or not discounted (billed). Providing that
would make line-item reconciliation possible, but without it, one can
only guess at which clicks they are catching and which are slipping
through.

At this point, we have already eliminated most of the clicks from the
total; those which are not reported, those were have already been
filtered out, and those which are reported but declined.

Finally, and perhaps the largest unknown variable, are all of the
clicks that are both unreported AND undetected by Google. Note that
any such clicks would come out of the 90% that they claim are
"valid", and that however large the number of such clicks, it would
not affect the 0.02% figure, based on the way that it was worded.

2007 Mar 05 03:51 PM

[Hayweed:]

All this is overrated. Magazines and newspapers sell ads based on circulation. My newspaper is still in my mailbox and I did not read yesterdays. Are the ads sold based on my reading of the paper circulation fraud. What about billboards. I drove by it but I was busy looking at traffic, is this billboard fraud. All advertising is a risk that the consumer may ignore or not see their ad.

The way I see it, if you advertise on the internet you can track your sales and clicks better than any other ad form. This is good because you can quickly see results and continue with ads or stop them. Considering that GOOG revenues and earnings keep growing, I think the advertisers are happy, thus click fraud is a non event.

2007 Mar 06 09:54 AM