While the headlines this week led with the impact of the record-setting European Commission (EC) fine to Alphabet’s (Google’s) earnings, advertisers should focus more on the acceleration of paid clicks that Google disclosed earlier this week.
Paid clicks increased 52% year over year — the highest increase in seven years — and a whopping 61% on Google properties. The result was another quarter of more than 20% revenue growth as Google continues to grow at a steady clip.
Some of the quantitative highlights from Q2:
- Revenue increased 21% to $26.01 billion (23% on constant currency basis)
- Net income decreased by 27.7% (factoring in the accrual for the EC fine) but increased by 28.4% on a pro forma basis (excluding the fine)
- Paid clicks increased 52% (highest in 7 years)
- Average cost per click (CPC) decreased 23%
- Other Revenue increased 42% (consisting of Cloud, Google Play and Hardware)
In our view, these results underscore the fact that mobile is not only huge but that its growth is accelerating.
On the earnings call, Alphabet CFO Ruth Porat stated that mobile delivered “tremendous results” this quarter. The increase in mobile has consequences, however — namely a general reduction in the CPC Google earns, which is why the CPC has declined for the last two years. Last quarter saw the greatest decrease so far, with the CPC declining 23% from Q2 2016.
In addition to mobile, YouTube’s significant growth also contributes to this shift. The issues raised earlier this year — about brands pulling away from YouTube due to concerns about ads being displayed with objectionable content — don’t appear to have slowed YouTube growth significantly (if at all). Google disclosed that YouTube now has 1.5 billion monthly viewers who watch, on average, 60 minutes a day on phones and tablets. Brands and retailers need to integrate video into their e-commerce operations and start thinking of how to capitalize on this trend.
From a product perspective, Google announced on the earnings call that the Google Assistant is now available on more than 100 million devices. Voice search represents a significant area of growth, which is why Google is investing there. Additionally, Google Home is now available in four countries (US, CA, UK, AU), and expansion into France and Germany planned for August 2017.
The Rise of AI
But “voice” isn’t the only area where Google is investing. Google’s CEO Sundar Pichai made a point to call out that “vision” is an important, high-bandwidth form of communication. It’ll be interesting to watch Google’s rollout of Lens, which is planned for Q4. Lens is a set of AI-based, augmented reality capabilities that will allow users to better understand what they are seeing through their camera.
From a retail perspective, this technology could include things like pointing a camera at a product and getting back product information (price, availability, retailers, etc). This innovation is a key indicator of Google moving toward becoming an “AI first” company, and it’s a trend that we will be closely watching in the months to come.