For Google, All Eyes on 'Costs Per Click'

When Google Inc. reports earnings on Thursday, many pundits might pick right up where they left off one quarter ago: With concerns about prices advertisers are paying to get attention in the Internet giant's dominant search engine.

Google, of Mountain View, Calif., issued a fourth-quarter report in January that largely fell flat on Wall Street, as profit came in well below expectations. During a subsequent conference call, executives were peppered with questions about an 8% decline in prices paid by advertisers during the period every time a user clicked on their ads.

In particular, analysts wanted to know if growing use of Google on mobile devices—where so-called costs per click can be lower—played a role. At one point, Chief Financial Officer Patrick Pichette half-joked that he would take any question not about costs per click.

But critics are unlikely to let the issue go. A report published last month by Marin Software underlines some reasons for concern. It showed that the percentage of clicks that Google sees on paid-search ads in mobile devices will grow sharply this year—to 25%, though prices paid for those clicks will stay lower than on desktop computers.

Increased demand is a good thing for Google, but it also means the company must make up for declining prices with more volume.

"As you shift from PC to mobile, there're just so many more clicks," said Anthony DiClemente, an analyst covering Google for Barclays. "That has broad ramifications for the pricing and volume of Google's fundamental business."

Search remains far and away Google's core business, despite its forays into areas including social networking and mobile software. As Google is pulled alongside its peers further into mobile devices such as phones and tablets, it must continue to make its economics work for shareholders.

In January, Google executives said there had been a number of reasons for the decline in prices paid for clicks, noting that more clicks on Google ads is a good thing, even if it does lower prices for advertisers.

"More clicking," Mr. Pichette reasoned, is "actually a pretty healthy environment."

Google also is expected to shed some light Thursday on things other than its core search business, such as the Google+ social network that it unveiled last summer. Chief Executive Larry Page already has dropped some related news, writing in an open letter posted on his Google+ page Thursday that the social network now has "well over 100 million users." That compares with 90 million Google+ users disclosed by the CEO when the company posted earnings in January.

In October, the company said it had about 40 million users.

Overall, analysts polled by Thomson Reuters expect Google to report $8.1 billion in net revenue for the first quarter, and adjusted earnings per share of $9.64. That compares to $6.5 billion in net revenue, and $8.08 per share in the same period last year.

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