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Google Likely Benefited From Q2 Ad Market Uptick But Forecasts Are Mixed [Reports]

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Search engine studies are rife, just two days ahead of Google's second-quarter earnings announcement on Thursday. All agree that the online advertising market has experienced an uptick during the period, and after all, eMarketer did say mid-June that search would be the biggest single winner of U.S. online ad spend this year. Google, notably, is seen as having benefited from the increase but the picture is rather mixed on the company as market analysts and search specialists seem to have conflicting views on the matter.

AdGooroo's Upbeat Outlook
Search marketing firm AdGooroo said it saw "healthy increases" in first-page advertiser activity, with Google recording a 7.3% rise while Yahoo and Bing only checked in a 2.8% improvement. AdGooroo noted that this translated into a slight increase in advertiser share for Google.

AdGooroo share of advertisers per engine.JPG

In terms of average number of ads per query (or ad coverage), Google had 15% more ads, Yahoo 22% and Bing 11%. The SEM firm pointed out that, based on Google's previous performance, "the magic number appears to be around 5.5-6.0 ads per query," a level beyond which, instead of creating more revenues, such displays actually trigger user discontent. Yahoo's count stands at 6.85, Bing is only showing 3.85 ads and Google went from 4.97 to 5.72. Yahoo is clearly beyond the threshold already but Bing still have plenty room for further increases both in ads and in subsequent generated revenues. As for Google, it also has a margin to leverage and with the rise in its ads, "there's a good chance they'll report healthy increases," AdGooroo predicted.

AdGooroo ad coverage Q2.JPG

AdGooroo further commented on Google's new indexing system, Caffeine, confirming that it led to the removal of "many auto-generated sites." I also said that Google is monetizing nearly 8% more of their keyword searches (compared to a decrease of keywords with no ads from 43.6% in the first quarter to 39.7% in June), judging it "a very positive sign."

Looking at verticals, it found "substantially increased spends" cell phone service providers, auto insurance, and printer ink vendors in the second quarter. At the same time, travel, online retail and mortgage lenders dropped significantly. The decrease in travel and online retail is largely seasonal and the fall in mortgage lenders is directly related to the state of the economy, meaning it is decelerating now as the overall outlook is getting better. Back in May, we'd suggested that Google might indeed be benefiting from the real estate recovery when it does pick up again.

As for the Bing/Yahoo Search Alliance, the SEM firm sees the integration finally taking place at the end of the third quarter, ahead of the holiday season. Research firm comScore did note in May that the U.S. search market shares of Yahoo and Microsoft (Bing plus MSN) grew fastest. But Experian Hitwise noted that Google still remained first with 72% of the U.S. search market in May, up from 71% in April.


Efficient Frontier's Cautiously Positive Views
SEM firm Efficient Frontier also issued a report showing positive, if not high, expectations, finding that ad spending rose as much as 24% in the second quarter. However, the SEM firm remains cautious and sees the search ad market growing just (compared to the quarter's performance) 15-20% for the full year, due to the European economy, whose weakness "might negatively affect Q3 2010."

Google garnered 75.6% of ad spend, up from 75.2% in the first quarter. Bing recorded 6.4% of ad spend, up slightly from 6.1% in Q1. Yahoo, however, saw its share drop to 18% from 18.7%.

Retail advertisers were the biggest spenders in the second quarter, allocating 38% more budget compared to the same period a year ago, while CPC rose 18%. The firm said the trend indicated "growing aggressiveness" from advertisers and is likely to be sustained. Well aware of the phenomenon, Google's Commerce Search 2.0 with on-the-fly customization was certainly meant for retailers and will support the search giant's quest for a larger market share.

Efficient Frontier's analysis by verticals differs with AdGooroo's as far as travel is concerned as it found that the sector rose and not fell. The auto sector edged higher too, while finance slid slightly (in line with AdGooroo's analysis of mortgage lenders).


Mixed Analysts Outlook
All those studies are coming out now for a reason: Google will be announcing its second-quarter earnings on Thursday. More precisely, if you're interested, its earnings conference is scheduled for 1.30 PM PST or 4.30 PM EST on July 15th.

As PaidContent says, the average expectation is for Google's revenues to have increased 22.5%. AllThingsDigital is basing its outlook on Efficient Frontier's report and is very optimistic on the numbers, even headlining Just How Good Will Google's Q2 Numbers Be? . However, looking at 'hardcore' financial specialists' forecasts, the picture is not that clear. They expect quite the opposite, in fact. Business Insider has polled a number of Wall Street analysts and the title of its article summing up their opinions is pessimistic: Analyst Says Q2 Earnings Might Be Terrible, Will Sink Tech. So what is it? If you read the article closely, it seems that the ad market improvement is putting pressure on expectations, hence the Mountain View-based company is set to report disappointing figures although the longer-term outlook remains largely positive. This is why analysts are being grim on the second-quarter results while recommending the stock as a 'Buy.'


Make Up Your Own Opinion
Too Much Wall Street Jargon? Why not make up your own opinion? We've reported a lot on Google recently and you can draw your own conclusions and figure out how it has and will fare.

On the positive side, there's been a batch of new launches and enhancements such as: 38 apps in the Google Analytics gallery; the Broad Match Modifier feature launch in the UK and Canada; its new SERP; Google TV; its new Caffeine search index; the Google Maps Navigation, mobile voice search, improved Gmail chat; the Google Maps user-content overlays; AdWords' new feature showing competitors' performance; the launch of über customizable Google Commerce Search 2.0; its Google News redesign; its acquisition of travel search firm ITA for $700 million; and last but not least, its Internet Content Provider Licence renewal from the Chinese authorities after Google tweaked its stance for mainland searches.

Then, there's the potential impact of all the negative press on Google this quarter: for instance AdMob being blocked by Apple just as Google's buy of AdMob was cleared by regulators; its acknowledged failure in collecting payload data; the ensuing lawsuits and other potential regulatory inquiries (it may have logged Homeland Security and Congress members' data) in the U.S. as well as in other countries across the globe; the potential in-depth EU antitrust inquiry following three complaints; and the French competition body's ongoing inquiry into AdWords' discriminatory behavior.

And finally, the various reports that seem promising and need be factored into any analysis of Google's future performance, including: its teaming up with Verizon to rival the iPad; its upcoming Newspass paywall; the possible foray into music services tied to search; its rumored Google Me social platform to rival Facebook for which it gave no confirmation although the former Facebook CTO did; and finally, and also more importantly, its reported $100M-$200M investment in Zynga that would seriously put Google in a position to vie with Facebook as a social and gaming platform.


It's all there. So what's your outlook?


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