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Q2 and Beyond

Written on
July 10th 2008
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by DM Confidential  |
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money_tree_small.jpgDM CONFIDENTIAL — Managers everywhere begin to stress during March, June, September, and December, as those mark the end of the fiscal quarters. Those watching over their profit and loss reporting are doing what they can to hit the numbers they promised to other stakeholders as well as updating the numbers for the upcoming quarter. Then, it’s rinse and repeat every three months, with a period of more intense planning towards the end of their financial year where they must attempt to predict not just the next three months but the next year. This being the second week in July, means that most companies are working hard to finalize their second quarter, i.e. April through June, performance. The implications for companies on these numbers depends on whether the company is private or public. The former can keep their outcome under wraps, whereas the latter must make them known to the world, but primarily for the benefit of those considering buying or selling shares of the company. This time of year also becomes an unofficial sport for those following the stock market as they try to predict how companies will perform and make prescient investment decisions before the actual earnings announcements. Even before the announcements, wild swings can occur as information that might be indicative of a company’s performance makes it way known, even if it relates to a completely different company.

One such event happened last quarter when comScore reported that Google paid clicks in the United States grew only 2% in Q1 versus the same time a year ago, and compared to the previous quarter, clicks decreased 9%. When Google reported much better than expected revenue and earnings, that seemed to call into question the comScore data, which upon its release negatively impacted Google’s stock. As comScore and others pointed out, though, “many pundits attempted to draw conclusions about Google’s worldwide revenue performance based on comScore’s domestic paid click data, resulting in an apples-to-oranges comparison.” Andrew Lipsman, a marketing and communications manager at comScore summarizes by saying, “1) U.S. paid clicks have indeed softened, 2) that the softening is not due to the economy, and 3) Google’s overall revenue performance was driven by strong international growth and CPC increases.” Now, with Q2 2008 having come to an end, the same questions that haunted companies three months ago have again resurfaced. With respect to Google, search engine intelligence firm AdGooroo, released their own findings, focusing on advertiser penetration as opposed to estimated search query data. They report, “Over the past 6 months, the average number of ads per keyword shown on Google in the US has declined from 6.5 to 4.0, a nearly 40% drop.”

Sounds like the making of another comScore misunderstanding, but AdGooroo clearly hedges the potential implications by saying, “While it’s possible that this could reflect a poor economic environment, it’s more likely the result of Google’s ongoing efforts to improve the quality of its ads.” It’s the question that everyone wants to know this time of year, i.e., what will the numbers look like, and the various reports try to naturally help by acting as a proxy for the actual outcome. While probably not qualifying as such a heuristic, a recent change at our favorite love to hate internet monopoly hints at either its maturation into just a company or a reflection of the tough times, neither of which sound particularly appealing. The change in question involves the subsidized perks, in this case day care. As reported in the New York Times, “Under the new plan, parents with two kids in Google day care would most likely see their annual day care bill grow to more than $57,000 from around $33,000.” The story gets better. Continues the article, “Do you think you know how this story ends? You’re probably guessing that because it involves ‘do no evil’ Google, Fortune magazine’s ‘Best Company to Work For’ the past two years, this is a heart-warming tale of a good company reversing a dumb decision. If only.” And that “Google co-founder Sergey Brin said he had no sympathy for the parents, and that he was tired of ‘Googlers’ who felt entitled to perks.” If I had to survive six rounds of interviews, I’d want some perks too. A gold star might work too.

As for how Google might fair for Q2, according to RBC Capital Markets analyst Ross Sandler, the bread and butter of Google, i.e., international clicks, “seems to be holding up well in the UK and broader Europe.” The rest of the companies might not fare as well. Yet another report has come out predicting slowing ad growth. Now that we entered our first bear market in six years, it might start to feel to some as though time has started to go in reverse. The silver lining of course, the survey found “paid search and direct response ads that can be tied directly to ROI” most likely to thrive. Others agree with parts as well. One leading forecaster who, like three others, also revised his 2008 downward this month said though, “It will get better in the second half of the year,” and that “the worst is over in terms of the slowdowns.” Or maybe not. Just yesterday, the Federal Reserve suggested that the “turmoil in the housing and financial markets” will last well into next year. If you think about, though, by most objective standards, this year hasn’t been great, and we’ve just finished one of the slowest quarters of the year; yet, if you speak to many in the performance marketing space, they don’t seem to feel the same level of actual financial hit. Things are bad, but we’ve made it through one year of uncertainty and anxiety, and we’ll most likely have another that is a little bit worse, but we can do it. The key, in addition to focus (last week’s topic) is perspective. Just remember, this too shall pass.

Courtesy of DM Confidential

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DM Confidential
www.dmconfidential.com
e: confi@digitalmoses.com



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