By Benjamin Pimentel, MarketWatch
SAN FRANCISCO (MarketWatch) — Google Inc.'s stock on Friday suffered its biggest one-day drop in nearly three months after the search giant's surge in earnings was offset by the worrisome trend in its ad prices.
Shares of Google
/quotes/zigman/93888/quotes/nls/goog GOOG
-4.06%
shed 4.1% to close at $624.60, sliding back into the red for the year to date. The stock has fallen 3.3% since Jan. 1.
The Mountain View, Calif.-based company's results underscored a current problem: More users are clicking on ads, but the price paid for each click continues to slip.
Google outlines new class of stock
Search giant releases its quarterly earnings and also outlines a new class of nonvoting stock, which its founders called an effective stock split. (Photo: AP)
That has prompted some analysts to note that, while Google remains a promising long-term growth story, it's bound to struggle with near-term challenges related to cost-per-clicks, the prices paid for the company's online advertising.
Google reported a 12% year-over-year decline in cost-per-clicks, even as its paid clicks, the number of times users click on the company's ads generating revenue, jumped 39%.
A key reason given for the trend is the rapid shift to mobile computing and faster growth in emerging markets, areas in which cost-per-click pricing is lower.
Morgan Stanley's Scott Devitt also wrote in a note that the company is bound to "experience an extended period of lower [cost-per-clicks] as its search business transitions to mobile, and as usage in developing markets outgrows usage in developed markets."
BGC Partners analyst Colin Gillis pointed out that "the poor conversion and click pricing in mobile is a growing problem for the company, given its escalating investments in smartphones."
/quotes/zigman/93888/quotes/nls/goog
GOOG
624.60,
-26.41,
-4.06%
Google's stock has fallen 2% since Jan. 1.
"We prefer to see both paid clicks and click prices growing in tandem," he said. Gillis maintained a hold rating on the stock.
ThinkEquity analyst Ronald Josey said he now projects cost-per-clicks to decline each quarter in 2012, but he maintained a buy rating on the stock, citing the company's jump in paid clicks and "newer advertising formats like mobile and display, [which] drove 24% revenue growth."
Susquehanna analyst Herman Leung also maintained a positive rating on the stock, because of Google's "ability to continue to evolve and optimize for continued secular online-ad gains."
Google's strengthening position in mobile computing, underscored by the gains of its Android operating system, is one positive factor noted by analysts. "Display and mobile continue to emerge strongly and long-term opportunities remain in the new products such as Google+ and Google Wallet," Leung wrote.
Barclays Capital analyst Anthony DiClemente also played down the pricing trend, while zeroing in on longer-term opportunities.
"We are less concerned by this decline than others as we view [cost-per-clicks] as only part of the revenue story, and are of the belief that [cost-per-clicks] will improve over time as Google's core search business will monetize well on mobile devices, in part due to higher paid ad click-through from less screen real estate."
Google also announced the creation of a new class of nonvoting stock, a move described by Chief Executive Larry Page in a letter as "effectively a 2-for-1 stock split."
Read First Take on Google issuing nonvoting stock.
Leung cited several reasons for the move, including helping the company "preserve current level of voting control to drive long-term vision of the business."
Read blog post on Google's effective stock split.
/quotes/zigman/93888/quotes/nls/goog 
US
: Nasdaq
Volume: 8.16M
April 13, 2012 4:00p
Market Cap
$211.67 billion
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