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3 Good Reasons to Buy Google Stock Today

Google shares dropped 3% in after hours trading Wednesday after a disappointing earnings report, making today an excellent day to buy Google stock.

Wall Street reacted negatively to Google’s Q1 earnings report which showed their revenue only up 19% YOY with earnings a disappointing $3.45 Billion for the quarter. {Aside: Man o man would I like to put up a quarter like that!}

The street is (over) reacting to Google’s current struggles with mobile ad revenue. As our Mark Ballard called out in RKG’s Digital Marketing Report, smartphone CPCs remain low relative to desktop, and their share of traffic is increasing, causing slower than expected revenue growth from increased ad click traffic.

Here are 3 reasons to take a little cash out of savings to buy some Google stock today.

  1. Markets overreact…always. Just as pendulums don’t screech to a halt when they get to the mid-point, markets always go too far in the red on bad news and too far into the black on good news.
  2. Google’s perceived struggles show overall strength. Ad traffic continues to grow…by a lot, and Google’s revenue continues to grow at a close to 20% YOY clip. Were people migrating away from Google the concerns would be serious, but people aren’t moving away, they’re more reliant on Google every quarter. Click traffic is the key metric to watch to understand Google’s overall health and business upside for reasons I’ll lay out next
  3. Smartphone CPCs won’t keep falling, in fact they will start increasing in Q3 I’m betting. Why? Two reasons: first, we will catch up to our tail from last year’s Enhanced Campaigns transition which RKG correctly predicted would push down smartphone CPCs, so YOY comparisons will start to look better; second — and far more importantly — bids for mobile ad traffic will begin to increase as advertisers get better visibility into cross device conversions (smartphone to tablet or desktop) and cross channel conversions (in-store spillover).

To amplify this last point: companies that have visibility into cross-device spillover see significantly more conversions from mobile traffic than they would see in a device-siloed world. This means the traffic is more valuable than they think, they can bid more for it profitably, and they will do so once this effect is fully understood.

As important as that source of under-reported conversions is, our research with a few clients has shown dramatically more smartphone to brick and mortar spillover than I ever imagined we’d see. Think on the order of 1 to 3 offline conversions for every one observed on the device. Fold those two effects together and improve visibility into those effects and watch the auction for ad traffic heat up.

People aren’t using Google less, they’re using it more. They aren’t using Google for shopping less, they’re using it more. Advertisers’ vision around mobile is a bit cloudy right now and that’s caused uncertainty and understandable hesitancy to press the gas pedal, but the clouds won’t last. This old man remembers when ecommerce was young and catalogers saw the efficiency of direct mail appear to drop as a result of consumers no longer calling the call center with their tracking codes in hand, but instead going to the website to place their order. Uncertainty caused some to pull back circulation to their detriment, and that’s what we’re seeing right now in smartphone advertising.

As visibility into the full value of smartphone search traffic continues to improve, CPCs will rise, Google’s revenue growth will accelerate, and GOOG shares will take off…again. You’ll be happy you took my advice and bought a few shares today!

My advice on buying stocks is usually terrible, but my track record on blog stock predictions is pretty good: http://www.rimmkaufman.com/blog/why-i-just-bought-facebook-stock/15072013/

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