Google Online Ads Growth to be Stronger in Q2- 2013

Google’s Domestic desktop CPC growth is likely to range in high single to low double digits yoy across our contacts. Growth in the proportion of lower priced mobile clicks was offset by growth in average mobile CPCs. A number of our contacts noted that growth in Product Listing Ads (PLAs) CPCs continued as more and more retailers continue to come to auction. Further, our checks indicate most advertisers have not yet adopted Google’s new enhanced campaigns in AdWords due to the need to rework their campaigns to reflect the grouping of tablets and desktops in enhanced campaigns. As such, we would not expect enhanced campaigns to impact CPC’s until Google implements automated conversion later this month.

Mobile clicks were split evenly between smartphones and tablets. While smartphone and tablet CPCs were up 13% yoy and 23% yoy, respectively, smartphone CPCs stood at 60% of desktop CPCs and tablet CPCs were in a range of 97-100% of desktop. Mobile queries on Google will grow just over 60% in 2013 compared to just over 100% in 2012. As such, we expect the outsized growth in mobile to continue to be a headwind to overall CPC growth, while driving growth in paid clicks.

The impact of Mobile TAC payments can be seen the relationship between growth in Google websites revenue and growth in distribution related TAC. We note the TAC that Google pays to Apple to be the default search engine on iPhones and iPads is contained in the distribution partner line. In 2012, distribution partner TAC grew 43% to $2.17bn and accounted for 6.9% of Google websites revenue, up from 5.8% in 2011.