Covario’s Quarterly SEM Spend Report an Indicator of Future Revenues and Stock Price
Covario has now published our quarterly SEM spend trend report for seven years. We have enjoyed great feedback from clients who use the report to manage and forecast their annual PPC budget growth and allocations across geographies and search engines.
Another great audience for our reports has been the investment community, especially securities analysts who follow the leading Internet companies and like to receive our report the first week of each quarter, before actual earnings announcements, as an early signal to the search spend trends for Google, Yahoo!, Baidu, and others.
So, while I’m not an investment analyst, and with all appropriate disclosures, it seemed like it might be interesting to see how Covario’s overall search spend growth forecasts have corresponded or not to Google revenues, and if there are any correlations to Google’s stock price.
In this first chart, we go back to January 2009 and index Google’s actual revenue versus Covario’s quarter-to-quarter search spend growth estimates, including our forecast to end of year. The red line is our estimate (note: it is the Covario estimate of total global search growth spend, not just Google) and the blue line is Google’s actual revenue (indexed to January 2009). We can admit to our seemingly missed forecast in April 2011 based on global economic conditions at the time. We are leaving it in there because, even without changing our historical predictions, our index catches up to Google’s current revenues, and because this part of the forecast comes into play later as well. Also, at the beginning of this year, we predicted a bit of a softening compared to last year’s holiday rush based on all the new smartphones, tablets, Ultrabooks and Microsoft’s new operating system. Google’s revenue growth flattened but did not diminish. Note that we predicted and saw a big Q2 increase; this summer we expect another slight slowdown in growth due to general summer slowness and some macro uncertainty before a predicted very strong and highly competitive Q4 spend and holiday season season. The other interesting note for the future is with the exception of one quarter Google’s revenue index tends to moderately outperform our generally bullish calls for overall search spending growth!
Google’s Revenue Growth (blue) Indexed vs. Covario Estimates (red)
As the investment analysts seem to like our and some other search agency estimates and forecasts, we thought it would be interesting to see how Google’s revenue and its stock price are correlated. In the chart below, Google’s stock price is the green line and Google’s revenue is still the blue line. What’s interesting to see is the volatility of Google’s stock price versus the pretty smooth up and to the right of their revenue. In early 2009, the stock seemed highly over indexed to Google’s revenue, and in early 2012 it seemed under indexed to Google’s revenue. As of end of Q1, they seemed to be reasonably indexed with each other, and as of the writing of this report, Google’s stock price has had a run up from the $850 range to the $900+ range, seemingly pricing in expectations for another good Google quarter.
Google’s Stock Price (green) Indexed vs. Google’s Revenue (blue)
What is most interesting to see was when we overlay Covario’s global PPC search spending growth estimates versus Google’s revenues and stock price. Surprisingly, what we see here is that the global economic conditions that caused Covario to “miss-forecast” Google revenue growth in April 2011 also seemed to severely depress Google’s stock price at the same time. Similarly, we called for spikes in spending in Q2 and Q3 2011, and Google’s stock went up in lockstep. In Q4 2011 and Q1 2012 while Covario called for flat spend growth, Google’s revenue continued to go up smoothly, but its stock price hovered with volatility in the same range. And Covario’s April and October 2012 forecasts showed accelerated global growth in SEM spend, just months before Google’s stock price shot up again.
Google’s Stock Price (green) Indexed vs. Google’s Revenue (blue) and Covario Estimates (red)
For the rest of the year, we see a flattening to downtrend in spending for the rest of summer, followed by a sharp spike in “back-to-school,” pre-holiday and holiday spending. A reader can draw your own conclusions as to what to expect in the Google revenue trend line as well as the Google stock price based on these forecasts.
To be very clear, we all know that a lot goes into forecasting and analyzing public companies and stock prices, including fundamental analysis of not just their revenue growth, but also profitability, balance sheets, cash flows, product lines, management changes, and acquisitions. Certified financial analysts and investment professionals also carefully consider the macroeconomic situation and competitive trends as well.
Additionally, Covario’s data set is limited, and we always caveat that our SEM spend trend is primarily based on the consumer electronics and high-tech verticals. For the most part, we leave ecommerce/retail, hospitality and travel, and miscellaneous categories to other PPC agencies to contribute data and insights.
Still, based on this limited data set, we can see some interesting trends and possibly draw the following conclusions:
- Google is a revenue growth machine, going pretty consistently up and to the right. Even with Covario’s bullish 18-20%-plus annual global SEM spend growth estimates, Google continues to outperform our estimates.
- Google’s stock price in the past seemed fairly uncorrelated with its revenue (although more recently they seem to be in line), and appears to often be more reactive to global macroeconomic conditions, news, and other market factors.
- Covario’s SEM forecast for the rest of the year is for higher budgets, increased CPCs, and price competition, in what should inevitably yield higher revenues for Google.
Thus, given the publicly available information, I could easily predict Google share price hitting $1,000 before the end of the year, but then again, I just run a search and software company and am not an investment expert. What do you think? Will Google hit $1,000 before the end of the year or not until 2014, or will they suffer the Apple curse of nearly making $1,000 and then falling away? Or when they do hit $1,000, will they be able to maintain it? Looking forward to both professional and amateur investor comments!
The analysis and comments presented here rely on publicly available information, are solely those of the author, and are intended for informational purposes only. The author is neither a securities expert nor does he own stock in the companies discussed. The views expressed do not necessarily represent the opinions of Covario, Inc. on whether to buy, sell or hold shares of a particular stock. Readers should be cautious, consider the source of any advice on stock selection, and are advised to conduct their own independent research into individual stocks before making any decisions regarding their purchase as stock performance is no guarantee of future price appreciation.