Data for keyword search advertising for the month of February is set to be released tomorrow by industry research firm comScore (SCOR), according to William Blair & Co. analyst Troy Mastin, and the data may not be encouraging for Google (GOOG), he thinks. February’s paid click stats for Google likely won’t show much of an improvement from January, when comScore said the number of Web-site clicks for which Google gets paid by advertisershad not risen at all in January. That reported prompted a more than 6% sell-off in Google shares.
Mastin thinks tomorrow’s report will “show only modest signs of improvement” over January’s data. Looking at Google’s overall volume of keyword searches, he sees a potentially disturbing statistic in that Google’s keyword searches rose only rose 26.4% in February, as comScore reported last week, compared to 36.9% in January. If comScore reports lackluster paid clicks for Google tomorrow, Mastin thinks a slowdown in advertising is likely a culprit. While comScore has stated that Google has been tweaking the algorithm it uses for counting paid clicks, Mastin says that’s not the whole story. Mastin said he surveyed a number of search-engine marketing firms, which follow the industry, and they mostly “acknowledged that they are seeing a slowdown that is more than normal cyclicality.”
He goes on, “A meaningful portion of the decline [in growth of paid clicks at Google] is probably also due to a maturation of the industry and/or the cyclical exposure of the sector given poor economic conditions.” Mastin believes there’s a chance Google will not make consensus estimates for $4.64 in EPS and $3.66 in revenue for the current quarter. Still, he has an Outperform rating on the stock and views it as an attractive investment “long-term” based on a P/E of 18 times next year’s estimated profit.
