Google paid clicks data generate debate on Wall Street

New data confirming slowing growth in Google Inc.’s paid clicks renewed debate Thursday on Wall Street over whether the Internet search company’s revenue can quickly adjust to changes it made in how it generates clicks.

Citing data that ComScore Inc. released after the market closed Wednesday, analysts said growth in Google’s click-through rate has nearly ground to a halt.

Shares of Google fell $14.11, or 3.1%, Thursday to $444.08.

The click-through rate grew 3% in February compared to a year earlier, and January saw no increase compared to January 2007. Several months earlier, the rate was growing 25% to 40% compared to a year earlier. The new data is in line with click-through declines Google reported last quarter.

Google, which gets paid when users click on a sponsored ad that comes up as the result of a Google search, has reported steadily rising per-click revenue.

The Mountain View, Calif.-based company said in January that the drop in click-through rates is a result of its efforts to boost the usefulness of each click to its advertisers’ sales performance. For instance, the company decreased the space around a word that would result in a click, so more clicks would be intentional.

Analysts disagree on how long it will take Google’s per-click revenue to adjust to any increased value per click it has created.

Rob Sanderson, an analyst with American Technology Research, said per-click revenue would rise immediately if advertisers saw more value in each click, because they would pay more for them at auction.

“It’s not clicks that advertisers are really buying, it’s what those clicks get them, which is sales conversions,” Sanderson said.

Colin Gillis, an Internet analyst at Canaccord Adams, also was optimistic: “It’s very difficult to spin this as positive data point, but it also doesn’t mean the world is ending.”

The click-through rate is only one piece of the equation for Google, he said.

“The counter point is that Google is out there saying, ‘We are trying to make our clicks more worthwhile.’ They want to actually deliver relevant hot leads to their customers because that’s what their customers want,” Gillis said.

Other analysts disagreed.

Piper Jaffray analyst Gene Munster predicted that Google would fall short of Wall Street expectations in the current quarter because of the click-through rate.

Lehman Brothers analyst Doug Anmuth cut his 2008 profit estimate for Google and reduced his price target to $580 per share from $644, citing the click-through rates.

He also said advertisers may be trimming their budgets – and not responding to the changes Google has made.

Google, which will report first quarter earnings April 17, declined to comment on the ComScore data.