The GOOG Under $500 Sale Is Over

Here at The Kelly Letter, we’ve been taking advantage of low stock prices while they last. I wrote to subscribers that the time GOOG spent under $500 was a great chance to build a position in one of the best online companies.

Looks like that sale is over, and I’m glad we already have our shares.

Last night, Google proved the hand-wringers wrong by reporting Q1 earnings and revenue growth above expectations. It was the 12th time in 15 quarters as a public company that Google beat estimates.

Data from comScore showing Google’s ad clicks to be slowing missed a key reason why. Google deliberately limited the volume of commercial links so it could serve up more compelling messages creating actual sales. Google gambled that advertisers would be willing to pay more for each ad link if doing so created more revenue with fewer clicks.

According to the first quarter’s results, that gamble is paying off. ComScore should adjust the way it delivers its findings. It claims to have never passed judgment but just reported a slowdown in clicks, but reporting a slowdown without providing context made Google’s situation look bad when it was actually good. If the purpose of reporting clicks is not to understand the health of the business, then what’s it for? Understanding that the quality of clicks is as important as the sheer number of clicks seems like a key part of comScore’s job, and one it messed up. Little surprise, then, that its stock fell 8% on Google’s strong report.

Meanwhile, GOOG shares rose 17% in after-hours trading last night. Hats off to everybody who had the courage to buy when the news was bad — and wrong.

Here are highlights from Google’s conference call:

Eric Schmidt: It’s clear to us that we’re well-positioned for 2008 and beyond, regardless of the business environment that we find ourselves surrounded by….paid clicks growth is much higher than has been speculated by third parties.

We’re putting more and more flexibility and control in the hands of advertisers so they can decide exactly where their ad should go and measure it in the way using Analytics that they could not do before. It’s also important to note that DoubleClick has been added now to the portfolio and DoubleClick is hugely strategic for us. It allows us to offer a much more comprehensive solution for advertisers and publishers. This has been asked for long time and now we are able to do it.

We are working to build out a whole new online web experience and we’re beginning to have all of the pieces now in place. For example, the recently announced partnership allows us to integrate for an enterprise customer with the products as well as all of the Google application services and sold through their direct sales operation.

By doing these partnerships and by investing heavily in new applications models we think people will spend more and more time online and they will able to do things like sharing documents, sharing calendars, dealing with photos and all those kinds of things in a way that had not been possible before.

On the Yahoo question, we are very excited to be participating in this test, at the beginning of the second week on the test. I don’t think it’s really appropriate to speculate beyond that but it’s nice to be working with Yahoo and we like them very much.

Let me give you a sense on the China situation. We are seeing market share growth and good revenue growth as we have learned to operate in that environment. Although the advertising business is nascent in China, the fact of the matter is that the Chinese internet is so large that even on a small basis the numbers add up to be quite significant with a good growth rate. We believe that China will continue to be a good market for us.

Sergey Brin: You’ll notice that you can now search within a site directly from the Google Search results. So, you’ll get a top level site in your search results, but if you want to further search within that site there is a box right on the search results page and you can quickly do a query. If you search for something like NASA or IMDB you’ll see examples of this.

Finally, let me just tell you a little bit of our progress on Mobile, because more and more people are accessing our Search and other services through mobile devices. We’ve now launched a much faster Search experience and it’s now available in Mobile in 40 languages. Our Mobile Search traffic, as a result, and just due to market growth, is growing very rapidly. That’s for Search, but actually across other properties also, we’ve now launched a new version of our YouTube mobile site and mobile users now can access the entire library of videos. If you remember in the past it was a subset because there was little bit of delay in transcoding, but now all the videos are available. We’ve had mobile playbacks increase tremendously.

Larry Page: Now switching gears to AdWords, one of the things we launched was a tool that gives customer’s better control and more data and those things are the Conversion Optimizer which we first launched in 3Q07. We are now seeing really rapid adoption across our advertiser base. What that Conversion Optimizer does is let the customers bid per customer conversion rather than per click. You can pay basically when someone buys something rather than when someone clicks something.

As you can imagine, that really lets people optimize a lot better and we’re really excited about getting wider and wider adoption of that and it has really been taking off like we had hoped.

YouTube obviously we are very excited about. It keeps growing extremely fast. We are up to about ten hours of video uploaded every minute on YouTube. So you can imagine just the rate of that is incredible.

We have in-video ads, which have great adoption on YouTube and customers are increasing the size of their campaigns. We’ve now launched AdSense for videos, so now these in-video ads can run on sites besides YouTube and they may perform very well; we are seeing much better click-through ads than banner ads and that’s a really big deal and we’re really excited about that.

Even with GOOG up 17% after hours, it still needs another 42% gain to reach its November high of $747.

I’m betting it gets there.

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