For Alphabet(NASDAQ:GOOG)(NASDAQ:GOOGL), Google income is largely derived by displaying ads, and in many cases, the clicks generated by those advertisements.That has raised a possible red flag for investors as the company's latest earnings release showed that cost-per-click pricing has been falling as traffic volume shifts more heavily to mobile, away from desktops and laptops.
Mobile traffic presents a unique challenge even when serving search engine results, because the screen on a phone -- or even a tablet -- simply has less real estate for ads to be displayed.
Tune in to hear Motley Fool analysts Dylan Lewis and Sean O'Reilly explain why this is a concern but not a huge issue for the search leader. Listen to the entire podcast by clicking here. A full transcript follows the video.
Dylan Lewis: If you were going to nitpick and look for something negative here, I think you've got to look at paid clicks and CPCs, and what's going on there.
Sean O'Reilly: This is, of course, related to the shift to mobile.
Lewis: Yes. Aggregate paid clicks grew 23% year over year. Analysts had only expected 18.6%, so you think that's great. Volume wise, it was fantastic, but aggregate cost per click -- what people are paying for, individual placements -- fell 11% year over year. Analyst's expected...
O'Reilly: We talked about this last time.
Lewis: ...a drop of 8%. This is something we've talked about before, where CPCs are falling, and they're making it up on volume, right? That's the narrative. People have been OK with that for a while. If there is something to be concerned about -- and this is the bear case for Google -- CPCs continue to fall as more users transition over to mobile, and in that transition, ads lose their efficacy. People just don't engage with them the same way that they do when they're on desktop, simply because of limited screen space, and people's browsing tendencies.
Because of that they hit this critical point where they can't keep growing volume to support the growth because of low CPCs. I think that's a legitimate concern, but they just keep knocking it out of the park. A big part of me thinks that they will figure out something to supplant that revenue base because they have so many other projects in the hopper that could turn into huge, huge businesses for them.
Dylan Lewis has no position in any stocks mentioned. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.