Google Off 5%: Q2 Misses as ‘Cost-Per-Click’ Falls 6%

Then just set Bid adjustment to -100% for mobile devices and tablets with full browsers.

A few years ago to grow profits they forced all Quality scores down. I had keywords cost double and triple after that. I especially like when I add a keyword and initially it has a quality score of say 7 then a few minutes later the quality score is a 3 or 4. Hate to imagine what more they might do now that they "missed" expectations...

Massively over-simplifying, the price of shares is what the last trade was at. So it does not require a high volume to change the price - just buyers and sellers agreeing on a different value.

And what is that value? The value of a share is the market's best estimate of the present value of the future revenue earned from owning that share. Those earnings can happen from dividends, stock buybacks, a takeover bid, etc. But fundamentally they are an estimate of future profits.

So why does it move so fast? If you tell me that a major metric, the revenue/ad, dropped 5% and all else held the same, unless you have a good explanation for the anomaly, my simplest estimates of your future revenue just dropped 5%. If I am afraid that the drop could be a long-term trend, my estimates might drop further. If I believe that the metric has reasons to recover, my estimates might drop less.

But the natural tendency is to base estimates of future revenue on current rates of revenue. So a one quarter drop in current revenue results in a corresponding drop in share price. (And vice versa.)

> Suffice it to say, I do understand a bit about markets

> so I'm assuming this is 'market makers' that are selling off shares and pushing the price down.

No. That is not what a "market maker" does.

A market maker does not take directional positions on a stock -- either long or short. Their goal is to make money on the bid-ask spread, and they try to maintain a net-zero position, so far as is practical.

The purpose of a market maker is to provide liquidity, by ensuring a sufficient tight bid-ask spread. By definition, this means that they are buying when others are selling, and selling when others are buying. Thus, if Google shares are going down due to selling pressure, then market makers would be buying.

>are they selling shares because they predict other people will sell shares and so they are simply 'beating' the rest of the market to avoid the predicted loss? Or are they selling the shares because they actually believe they are worth less due to the report?

Those are two sides of the same coin.

Stock prices are probabilistic in nature, because we're all operating with incomplete information. Consider an envelope that has randomly been prepared with either a $1, $5, or $10 bill inside (let's say someone rolled a die to determine the bill, put the bill inside, then gave it to someone else). Assuming equal probabilities of each bill, the envelope would have a market value around $5.30. If you wanted to buy it, that's about what you'd have to bid to win. Now imagine the person who prepared the envelope revealed that the $10 was not inside. Everyone bidding more than ~$2 would retract their bids, so now you only have to bid ~$2 to win it. They don't believe the value of the envelope actually decreased (the bill stayed the same), but now they have information that changes the market price.

The shares instantly drop in price because the price of a stock is based on the perceived value of the company. A release of new information can instantly change the value investors perceive a company to have. Shares of public companies like Google are being bought and sold every second, so a change in perceived value is reflected instantly in actual sale prices. However, buying and selling isn't necessary to change the perceived value of a stock. The perceived value of a share of a private company could change even if nobody is buying or selling shares at the moment. So, a change in stock value isn't necessarily related to a change in the number of shares people want to buy or sell.

Once the news hit, there was a demand for a discount on the stock, for obvious reasons, with nobody willing to sell at more than a 5% discount, so there you go, an instant 5% move to where a buyer finally found a seller.

If you're asking why sellers were willing to sell at that price, well, there were plenty of people willing to sell at a 4% discount instead of a 5% discount, but no buyers. All market participants have different opinions on the effect the news had on future cash flows, but the 5% magic number was the place where there was a consensus between bulls and bears on a fair price. The price of the stock only shows you where a consensus between a buyer and seller was reached, and doesn't tell you much about the structure of the order book or option chain for a stock, which indicates a lot more about what all market participants think about a stock.

Warren Buffett says stock prices are like a crazy guy knocking on your door everyday and throwing out a random number which "supposedly" represents your stock's price for the day.

That's how much stock prices represent reality and the worth of a company.

At a high level, we can consider the current buy demand to be weak based on the new information.

If bad news just came out, would you immediately want to buy? No, you'd probably wait. That overall pressure results in a downward movement in price.

Further, there is pressure for current holders to sell because they know there is going to be downward pressure. They can sell without much concern. Even if they really want to maintain their position, they can sell short term and buy back in later at a lower price.

The more significant the news, the more obvious the pressure will be and at a higher expected intensity - so more people will behave as described above.

They can make money on volatility, up or down. My uneducated guess is that they use the quarter figures as an indicator to make it easier to push the price down.

I don't think there is any long term reason for the stock to go down based on the latest quarter. Google are putting more ads in front of people, which means those bidding lower are getting more clicks, that will be why the average cost per click is down.

Google is making big changes in shopping and ecommerce ads which they stand to make a lot from long term.

Why not? Is there data about how much of GOOG or other stocks is owned by "individual investors" vs market makers?

I really doubt it. If anything I think it speaks to the value placed on online advertising, which I'm rather pessimistic about in general. It is a huge leap to go from slightly missed quarterly results to a downturn in the overall economy.

Do you have anything to substantiate this feeling that there's a second recession coming?

Crude at $106/barrel, Detroit declares Chapter 9 bankruptcy, DOW 15.5K, and...

whitey on da moon!

Doubtful... my guess (since I don't care enough to actually read their financial statements) is that the lower CPC is because mobile is growing faster than desktops.. and so they're getting more mobile clicks (which pay less). So in this case, after it's averaged out, they end up with a lower CPC.

Mobile search is ripe for innovation. Apple (and MS, Nokia, RIM...) can disrupt mobile search by providing a richer and more engaging search feature customized for mobile devices. The search box just isn't cutting it anymore.

Should they be worried? Nah. As a shareholder you can just click on more ads to make up for it. :)

>>>>Google, as a company, desperately needs new sources of revenue

It seems like every time they try and branch out from search and monatize some of their products, they fail miserably and then the pundits jump on them and tell them they should just stick with what makes them money - search.

It's a nasty cycle they're in.