huge earnings miss reveals downside risk to companies whose revenues rely solely on ad dollars.

1. GOOG: -9% on earnings
51% higher
revenue
($11.33B from $7.51B)
BUT still …
5% lower
profits
($3.01B from $3.18B
October 18, 2012 1

2. Evidence from Google
Source: BusinessInsider
Google Earnings Call
October 18, 2012
1. Aggregate paid
clicks growth
declined
2. Cost-per-click
growth remained
negative for 4th
straight month
October 19, 2012 2

3. Traffic acquisition costs
Traffic acquisition
costs (TAC) has
been trending up;
and as a % of
revenue has been
up for last 4 straight
months; dragging
on profit margins.
October 18, 2012 3

4. Greater efficiency …
• Good for the advertisers in general –
they get more bang for their ad dollar
• But, bad for companies relying on
advertising revenue, including Google
(GOOG) and Facebook (FB)
• Downward pressure on CPMs and
CPCs have led to lower margins
October 18, 2012 4

5. Dr. Augustine Fou – Chief Digital Strategist
“I study trends and implications for
companies operating in the
advertising and marketing space.”
FORMER CHIEF DIGITAL OFFICER, HCG (OMNICOM)
MCKINSEY CONSULTANT
CLIENT SIDE / AGENCY SIDE EXPERIENCE
PROFESSOR AND COLUMNIST
ENTREPRENEUR / SMALL BUSINESS OWNER
PHD MATERIALS SCIENCE (MIT '95) AT AGE 23
ClickZ Articles: http://www.clickz.com/author/1151/augustine-fou
Slideshares: http://www.slideshare.net/augustinefou
LinkedIn: http://www.linkedin.com/in/augustinefou
October 18, 2012 5
acfou@mktsci.com