FLWS miss points to rising PPC ad prices

Includes: FLWS, GOOG, YHOO
by: David Jackson

1-800-flowers.com missed numbers for the December quarter because of higher than expected marketing expenses. In its press release, the company stated:

McCann [the CEO] noted that the Company has "stepped up"
its marketing investments, particularly in evolving areas including
search and affiliate marketing. The Company also increased its efforts
in direct marketing and broadcast advertising programs. "...Our
increased spending here reflects both our strategy to become more
aggressive in terms of customer acquisition... as well as a response to
the increasingly competitive marketplace, particularly in our core
floral gift category", he said.

Given that FLWS'
revenues were in line with expectations, it's hard to accept that the
company stepped up advertising to boost its growth rate. More
plausible: increasing competition is driving up keyword prices and raising the cost of customer acquisition.

Broader stock impact: We'll likely see more of this
phenomenon this earnings season. Rising keyword prices are good for
Google and Overture (Yahoo!), bad for every e-commerce company that
pays for keywords.