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Alphabet Q2 Earnings In-Depth: Cost-Per-Click Down 23%

Alphabet Inc. GOOGL just reported its second-quarter earnings after the closing bell on Monday. The internet powerhouse posted strong revenue numbers, while profits dipped thanks to a massive EU fine.

Shares of Alphabet fell 3.01% in after-hours trading to $969.83 after it reported its second-quarter earnings. Alphabet is currently a Zacks Rank #3 (Hold) and scored an A for Growth in our Style Score system (also read: Alphabet Posts Q2 Earnings Beat, Profits Slump 28% After Massive EU Fine).

While the full report is noteworthy, we’re here to take a closer look at Google’s advertising business. For starters, the Mountain View, California-based company reported that Google’s advertising revenues jumped from $19.14 billion in the second-quarter of 2016 to $22.67 billion in 2017.

Alphabet’s overall advertising revenue rose again because Google continues to see a jump in its aggregate paid clicks, which represent the total number of ads served across Google properties. However, the company’s aggregate cost per click, which is the price advertisers pay every time a user clicks on their online advertisements, keeps falling.

The company’s aggregate paid clicks climbed 52% year-over-year and 12% quarter-over-quarter, which smashed our consensus estimates calling for growth of 38% and 0%, respectively.

Paid clicks on Google properties jumped 61% year-over-year and 15% quarter-over-quarter. The company’s paid clicks on Google Network Members' properties rose 9 % year-over-year but fell 5% quarter-over-quarter.

Alphabet’s aggregate cost-per-clicks dropped 23% year-over-year and 6% quarter-over-quarter, which both came in weaker than our consensus estimates of 15.8% and 5.6% respective decline.

These consensus estimates are from our exclusive non-financial metrics estimate file. These estimates are updated daily and are based on the independent research of expert stock analysts. Learn more here>>>

The company’s cost-per-click metrics on Google properties dipped 26 % year-over-year and 8% quarter-over-quarter. The cost-per-click on Google Network Members' properties fell 11% year-over-year but actually gained 5% quarter-over-quarter.

The massive shift towards mobile has helped force the cost-per-click numbers down for Google, as the numbers show that ads aren’t clicked on as often on mobile devices. Also, as the use of mobile apps becomes more and more popular, Google’s ubiquity and ad serving ability diminishes as mobile users use their favorite apps to read, buy, and search things online.

The number of total ads served keeps climbing, so Alphabet’s Google-based advertising revenue numbers haven’t fallen—despite the huge drop in cost-per-click.

This is relatively good news for Google, which faces a huge amount of online advertising competition from powers such as Facebook FB, Yelp YELP, and Amazon AMZN, who have more of an app-based presence online.

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