Google Ads and comScore: The Real Story

So the talk of the tape last week was obviously Google (Nasdaq: GOOG). The Mountain View search giant has been on a downward spiral since the end of last year and showed no signs of letting up now.

In fact, the stock is down over 33% in 2 months alone – that's over $70 billion dollars in shareholder value completely wiped out in a matter of weeks.

Last week was no exception – after a negative report came out from web traffic reporting company, comScore, Google's stock slid from $505 on Monday down to $471 by the close on Friday. That's a decrease of over $10 billion in market value in a single week based on a single report.

I can't begin to tell you how many news articles and blog posts I read that had the, "See we knew Google's success couldn't last forever", feel to them. The basis for this insightful, albeit untimely conclusion: the comScore report. On a side note: I bet the vast majority of the analyst and editors behind those articles were probably the same people who predicted Google would go to $800 per share only 3 months earlier.

In any case, the real issue here is the comScore report. Was it accurate? Did the media draw meaningful conclusions from it? Were the conclusions accurate?

Nobody seemed to bother asking those questions – well, if they did, those weren't the folks getting all the publicity last week. The only articles making the front page or the "most popular" lists were those calling for Google's head on a platter, so to speak. So let's fast forward to the end of the week when comScore published a post on its blog that pretty much read, "Oops, we might've given you the wrong impression".

My favorite excerpt with respect to the report:

"The information triggered a flurry of reactions in the media and the financial community that centered on two concerns: 1) a potentially weak first quarter outlook for Google, and 2) an indication that a soft U.S. economy is beginning to drag down the online advertising market.

While we do not claim that these concerns are unwarranted, we believe a careful analysis of our search data does not lend them direct support."

If you'd like to read the entire blog post, click here.

The basic gist of the blog post was that while total click-throughs may have been down, it was due to a conscious effort on Google's part to eliminate ineffective ads. Meaning, there was less opportunity for clicks because Google was proactively displaying less ads, thus increasing the dollar return on the ads that were displayed.

Bear Sterns' analysts aside, I think most folks realized that this report was overblown – at the end of the day, 3rd party data doesn't mean everything…money does. And according to many Google clients, some of whom I know personally, Google is still their primary advertising solution and they're seeing more and more money from the company each month.

Check out this report from Alley Insider which talks about one of the larger ad buyers on Google and why they'll continue to use Google as one of their primary marketing tools:

Ad Buyer: No Slowdown In Search Or Google

All in all it was a rough week for the company and the stock may not be out of the woods yet, but there's a valuable lesson to be learned here: It pays to do your own homework!

That's why I was so happy to see a few TickerHound.com members ask questions on this exact topic…one of the recent questions: "What will happen to Google now? Is the selloff going to continue, or has it bottomed out?"

While I couldn't tell you when Google's stock will be on the rise again, I can say for sure that this company isn't going to be another "dot bomb" sob story. I'm definitely a long term bull on this stock.

Disclosure: None

Comments

[User 159379:]

its funny every one that has lost their ass on an over inflated stock is now crying how great it is.. Do yourself a favor and stop trying to talk this stock up.. Get yourself some puts as there is still plenty of downward pressure..

2008 Mar 02 10:15 PM

[.crazylegs..:]

@User 159379 - You realize there is a very real secular movement of off-line advertising to online, right? This could last for a few years, and Google appears to be kicking everyone's butt at monetizing it. Priced at about 28x trailing and 21x 2008 earnings estimates net of cash, this stock appears undervalued with growth rates well in excess of 30%. Time will tell, but I'm on the long side buying as it has come down.

2008 Mar 02 11:41 PM

[Blenderboy:]

Buying opportunity - pure and simple. GOOG is dominating and monitizing in a way that is unprecedented. Who knows what the market will do in the short term but I am going to buy here with a two years view - impossible for most to understand, I'm sure, but it looks to me like a double over that time.

2008 Mar 03 12:57 AM