Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) is one of the most powerful names in tech, with its self-titled search engine making or breaking countless businesses based on what pops up at the top of your web page when you type in a given term.
For investors, however, that reach matters as it applies to Google stock and its ad revenue.
As the the go-to advertising platform for many marketers, the company recorded an impressive $43.7 billion in total ad revenue on the year — which was nearly 95% of the $46 billion in total revenue GOOG racked up in 2014.
So as Google embarks on what some are calling “mobilegeddon,” with an increased focus on mobile-friendly websites in its search results, GOOG stock investors need to look beyond the hype about how this will affect website rankings and think about ad dollars.
And the bottom line is that it appears Google’s ad strategy won’t be affected much by this move — and actually might wind up ahead in the mobile advertising game as a result.
GOOG Stock Goes Mobile
For starters, let’s remember that this move is a tweak to Google’s search algorithm that will only affect folks doing web searches on mobile devices. In other words, desktop and laptop users will still get the same results they were used to seeing.
Also, while Google is pretty ubiquitous, it’s not the only game in town; Google accounts for 64% of search results, according to comScore. That number that seems surprisingly low to folks who use Google religiously and exclusively, but it’s a fact, and based on the most recent data from March.
Of course, since most of the people writing about the Google algorithm change may be stodgy news organizations that are adversely affected by this mobile prioritization, you would think this change could shake the world to its core … but that’s simply not true.
So if you can look past the hyperventilation about traffic trends, it’s crucial to understand what Google is doing to understand the mobile experience — and more importantly, serve up the best ad business on top of that.
The fact remains that the mobile experience is vastly different than on a laptop or desktop, and performance in advertising can change greatly as a result. So by bifurcating how it serves search results, Google is actually being quite shrewd about the tools it is giving its advertisers — and working on increasing how much it can charge for ad inventory as a result.
Think of it this way: If you’re an advertiser that wants customers to sign up for something, with a complex product description and multifield form to fill out online, mobile users may be the wrong audience. I mean, who wants to tappity tap all your personal information on an iPhone at the dry cleaner? That may be too much reading and entry to do on the spot, and consumers will prefer to come back later on a desktop.
And if you’re a developer of a time-wasting game and simply want someone to install your app, who cares about desktop search traffic?
The same is true for consumers searching the web.
GOOG Fends Off Facebook
Yes, Google already allows for a lot of slicing and dicing based on geography and device use, so this isn’t a game-changer.
But as I’ve written before, Facebook (NASDAQ:FB) is a serious threat to Google’s long-term advertising growth as the social media giant provides ever-sophisticated segmentation of its own audience. After all, Facebook is well-known for all the personal information it mines out of its users in an effort to serve up a very specific customer to interested advertisers.
So to me, the change in Google’s algorithm is less about changing the nature of web traffic than simply providing a better mobile experience for both users and advertisers alike. Not only will this allow Google to maintain relevance and market share in its search business — remember, it’s only 64% of total U.S. searches — it also will allow the company to better slice the mobile experience in a way to get top dollar out of advertisers.
And let’s face it, as more traffic goes mobile, more ad dollars are going to migrate that way, too.
GOOG stock has made a lot of headlines about its difficult with “cost per click” metrics, or the amount that an advertiser pays Google stock when an interested customer clicks on their ad. But part of the issue is that mobile ads tend to command less cash because of poor performance, and Google is seeing more mobile business like everyone else.
So if GOOG stock can shore up or reverse this trend by a holistic approach to mobile, investors should be encouraged.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
