Alphabet Inc (NASDAQ:GOOGL) will report third quarter earnings after the closing bell on Thursday, October 25, and an important industry metric will be squarely in focus.
For many years, the search engine giant has relied on traditional cost-per-click (CPC) advertising for the bulk of its revenues. Those rates were trending steadily upward for quite some time before reaching a tipping point over the past year or so.
As MarketWatch reports, this development is now impacting earnings significantly:
That trend has put pressure on the company’s margins, which fell to 26.4% in the second quarter from 27.8% a year earlier. But some analysts say the quantity of mobile traffic will make up for lower per-click revenue.
Monness, Crespi, Hardt & Co. analyst James Cakmak recently wrote in a note to clients that the shift to mobile, and thus a smaller screen, will increase advertisers’ reliance on paid search and make search-engine optimization and organic results less relevant. “As such, we expect the tailwinds to paid clicks to remain robust for some time, and the cost-per-click … essentially more of the same attributable to ad mix.”
Will the CPC decline continue to hamper results? Analysts don’t seem to think so.
On average, Wall Street’s finest are forecasting Q3 EPS of $8.31, up significantly from the $7.25 per share GOOGL posted in the year-ago period. They also expect revenues of $21.9 billion, up 20% from last year’s $18.23 billion.
So far, Google has been able to weather the CPC storm. It’ll be very interesting to see how results fare this time around.
Alphabet Inc shares were unchanged in premarket trading Wednesday. Year-to-date, GOOGL has gained 24.74%, versus a 16.41% rise in the benchmark S&P 500 index during the same period.