GOOG, FB, VCLK: Baird Mildly Encouraged by Q4 Ad Trends

R. W. Baird online analyst Colin Sebastian today offers up findings of a conference call held Friday with search engine marketing outfit Covario, the immediate implications of which were that the current quarter’s search business “started softly in October and early November” but may be helped by positive recent news flow regarding Black Friday and Cyber Monday sales.

Writes Sebastian, “paid search spending in Q4, increasing 25%
Y/Y, but down a bit sequentially, likely due to distractions from Sandy and the elections”

CPC pricing is up 16% year-over-year, with click growing 9%. We note that Covario�s numbers are the inverse of the growth drivers for Google, which has reported declining CPC’s Y/Y offset by increasing click growth. We attribute this, at least in part, due to Google’s significant and fast-growing emerging market business which has lower CPC’s than developed markets as well as higher overall smartphone exposure which has CPC’s in the range of 50% of desktop PCs, according to our checks.

Google’s effort to get more merchants to sell through it is looking like as a success, as others argued last week, though it may be cannibalizing Google’s traditional search business:

According to Covario, Google�s paid PLA (product listings ads) are showing strong early results for merchants, with higher CTRs (click through rates) and conversion rates; however, advertisers do not appear to be increasing their Google budgets overall, suggesting some cannibalization from traditional paid search.

Among other tidbits� of the call: ad trends are picking up for Facebook, with more “direct response” ads and more coverage of the “news feed.” Ads on tablet computers are now at about the same cost-per-click as desktops, “marking an
important milestone in the monetization of mobile for Google and other online
advertising companies.”

Net, net, Sebastian thinks the findings are “mixed” for Google, positive for Facebook, and neutral for ValueClick (VCLK). He thinks there’s probably some upside, in general, to Street estimates for online advertising and e-commerce.

Sebastian rates Facebook and Google shares both Outperform, and rates Valueclick stock Neutral.