Google just reported its quarterly earnings. They did very well, beating pretty much every analyst’s numbers. Those who want to nitpick will complain that the price per click has gone down. However, that isn’t really surprising considering that the number of clicks went up. There are some issues coming with Google’s stock, but this isn’t one of them.

Google Cost Per Click Down

Google’s advertising model is based on advertisers paying either “per click” or “per impression.” Actually, advertisers pay per every thousand impressions, but that isn’t the point. Advertisers who pay using the per click model pay a certain amount each time someone clicks on their ad, but nothing if the ad goes unclicked.

A smart online advertiser using the per click model will determine how much each click is worth. There can be many ways of determining this, and numerous intangibles are considered by some advertisers. However, the most simple concept would be something like this.

Maximum payable cost per click = Amount of revenue generated per click / Number of clicks necessary to generate revenue.

In other words, if you generate $1 per transaction (this is called a conversion) and it takes you 10 clicks to generate one transaction, you can pay no more than 10 cents per click, which break even. You’d have to pay nine cents per click to generate a profit.

Google chooses which ads to display using an algorithm that takes into account several factors including the quality of the ads, how often they are clicked, how often they convert, and so on. However, all other things being equal, the highest paying ad is placed first. Furthermore, each advertiser can set various limits on the way their ad dollars are spent. When an advertiser’s limit is reached, his ads no longer display, regardless of their offering price.

With this in mind, we can see that if the number of clicks go up, the cost per click will go down, assuming all other factors are unchanged.

Here is how it looks.

• Advertiser A offers 50 cents per click, up to 1,000 clicks per some time period.
• Advertiser B offers 25 cents per click, up to 1,000 clicks per some time period.

That means that:

• The CPC will be 50 cents so long as there are 1,000 or less clicks.
• The CPC will be less than 50 cents if there are more than 1,000 clicks.
• The more clicks there are beyond 1,000, the further the CPC will drop.

As you can see, if advertisers make no changes to their advertising budgets and limits, the CPC will always drop when the number of clicks increases.

In fact, if the number of clicks and the the CPC increase at the same time, then that is an indicator that advertisers have dramatically increased their ad spending on Google. Because, in order for both the CPC and the number of clicks to increase, the additional CPC must offset the lowering power of an increasing number of clicks.

The other big news out of Google’s earnings today was the so-called stock split being used to shore up the founder’s control of the company. This isn’t really necessary, and we’ll explore why tomorrow.

Related posts:

1. Google Posts Higher Than Expected 3rd Quarter Numbers – Is The Recession Over
2. Lower Your Taxes – Increase Tax Deductions 2010

Google Lower Cost Per Click Doesn’t Matter originally published at Personal Finance Blog - FinanceGourmet.com

Happy Easter to all.

My your holiday be cheerful and merry.

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Happy Easter originally published at Personal Finance Blog - FinanceGourmet.com

There has been a lot of good news about the economy in 2012. With each passing month, it seems that unemployment drops further, the stock market goes higher, and the housing market… well, that’s why there is still a pretty big question mark out there.

Economy 2012 Outlook

Typically, after an economic downturn, the stock market leads the way (it’s a leading indicator) by rising in the months before various economic reports (lagging indicators) start rising. If all goes well, the stock market’s rise, is legitimated by improving corporate earnings and then backed up by an increase in hiring that improves the employment outlook across the economy. Once these things happen, the U.S. economy kicks into gear and things march upward until the next correction, recession, or god forbid, depression.

The stock market has gone nearly straight up since the beginning of 2012. Earlier this year the Dow went over 13,000 for the first time since 2008. Not far behind, the S&P 500 index passed its 2008 high-water mark earlier this month. And, as Reuters and other report, the number of Americans filing for new unemployment benefits dropped to a four-year low. This follows the last few months of good labor market news.

So, why aren’t economists and the public at large more excited about this economic recovery. There are many reasons, but two of them really stick out.

2012 Housing Outlook

There is still a big problem out there in the housing market. Some analysts say that foreclosures are down only because the banks were holding off while negotiating a settlement over bad foreclosure practices and that a huge backlog of foreclosures is now heading for the pipeline. If this is true, the flood of new foreclosed properties onto the market, plus the economic downdraft caused by people losing their homes, and being afraid of losing their homes, could pull the whole economy back into negative territory.

Until housing is more stable and there are no huge waves of foreclosure on the horizon, it will be tough to consider this economic recovery to be on solid footing.

Will Politics Destroy the Economy?

The other very big problem out there is Washington D.C. and the increasingly polarized politicians who every day seem to care less about America and America’s wellbeing and more about what is good for their specific political party. Our so-called representatives nearly drove the world’s economy off of a cliff with their brinkmanship on the debt-ceiling.

An upcoming presidential election only makes that whole mess worse.

On one hand, with a Democratically controlled Senate and a Republican controlled House of Representatives, there is little chance of any meaningful new legislation getting passed any time before November. That means that Congress won’t be able to proactively derail the economy.

Unfortunately, there is a ticking economic time bomb waiting for this divided Congress come January 2013. That is when the huge automatic budget cuts from that debt ceiling deal are supposed to kick in. It is also when both the Bush tax cuts and Obama’s recently extended payroll tax cuts are set to expire.

In other words, three enormous amounts of money are poised to be sucked out of the economy all at once. If the train wreck that is Washington doesn’t get its act together, doing nothing may be all that is needed to make months of rosy economic news moot.

That’s why you won’t find anyone celebrating no matter how benign the economic data seems. Unless the economy is roaring hot enough to overwhelm the possible one-two punch from a sick housing market and a sick Congress, then things are still very shaky.

Related posts:

1. Unemployment Report Bad News for 2011 Economy Recovery
2. Economy Outlook 2010 2nd Half – June Job Losses

Will the Economy Recover in 2012? originally published at Personal Finance Blog - FinanceGourmet.com

Yea! Just got news that Congress decided not to kill off the fragile economic recovery in the U.S., well, not yet at least. Congress has passed legislation that extends the payroll tax cut through the entire year.

The tax cut was a 2 percent reduction in the amount of Social Security tax paid by workers. The employer part of the social security tax (and therefore a significant part of the self-employment tax) was not cut. However, this tax cut put additional money in the pockets of households across America. Letting it expire and seeing what happens when people suddenly realize their paycheck is smaller than they are used to would have been a big problem.

Virtually every respected economist in the world warned that failure to extend this particular tax cut would have a big impact on the U.S. economy, perhaps causing the tepid growth to teeter, or plunge all the way back into recession.

I’ll be back later with more details once I have a chance to comb through the actually bill on its way to President Obama’s desk.

Related posts:

1. FDIC Insurance Limit Increase Extended
2. 2011 Section 179 Deduction Limits for Small Businesses Taxes

Payroll Tax Cut Extended originally published at Personal Finance Blog - FinanceGourmet.com

Just a quick update today:

The stock markets ticked up today on a little bit more good economic news. Following recent good labor market news and the Fed holding interest rates at zero, comes statistics showing last weeks jobless claims were at a 3 1/2 year low.

Also, several large companies reported good results.

Furthermore, two regional business surveys from the Federal Reserve showed better than expected growth for December.

Finally, the general business conditions index for New York was higher again showing an increase in both new orders and hiring. That’s yet more good news for the job market.

We’ll have new articles about end of year tax strategies, financial planning for those in extreme circumstances, and more in the coming days.

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Market Up on Good Economic News originally published at Personal Finance Blog - FinanceGourmet.com

In an announcement that comes as no surprise, in large part because it has been repeatedly telegraphed by the the Fed itself, the Federal Reserve Board on voted on Tuesday to leave interest rates at their current near zero rates. The Fed further reiterated its commitment to doing so for the near future, pledging to keep rates low through at least the middle of 2013.

There are several interesting implications for investors and consumers in the Federal Reserve’s actions and statements today. First, as mortgage lending continues to languish and be a rather slow and dour corner of finance, homeowners should take solace in the fact that there is no rush. While there is no guarantee rates will stay exactly as low as they are, the Fed’s continued commitment to low interest rates means that neither new mortgage interest rates or adjustable mortgage rates are going up any time soon.

Second, the Fed announced that it would continue to implements the so-called “twist” in which the Federal Reserve is moving its short-term bond holdings to longer-term bond holdings in an effort to bring down long-term interest rates. Longer term rates are traditionally less influenced by the Fed, which sets only the short-term overnight lending rate that banks use. However, this new wrinkle may prevent longer-term rates from rising, even if they were prone to do so. Again, this is good news for homeowners, though bad news for those trying to get better rates from longer-term bonds like pension funds.

Interest Rates Rising Soon is Myth

Third, the vote to keep interest rates low was 9 to 1, but it’s not what you think. The 1 vote against was not to raise interest rates, but rather a vote against current Fed action being insufficient. In other words, not only has the Fed committed to continuing ultra-low short-term interest rates, it is doing so unanimously with one member wanting low rates and then some. This is important because it shows that there is absolutely no reason to expect interest rates to rise anytime soon.

Fourth, while the Fed is very concerned about the U.S. economy and its lackluster growth, it did note that the economy IS actually growing. This is good news on several levels. It means that things are moving in the right direction, assuming that neither Europe, nor Washington, screws it up. It also means that the Fed is not going to kill off a weak economy by trying to thump it’s “inflation hawk” credentials.

Finally, although the Fed is leaving rates low and pledging to do so for an extended period of time, there is has been absolutely no talk of another round of Federal Reserve led stimulus for the U.S. economy. A third round of quantitative easing, or QE3, is not in the cards for the near future. I guess we don’t have to worry about Rick Perry indicting Federal Reserve Chairmen Ben Bernanke for treason before the U.S. elections.

What Fed News Means for You

What today’s news means for you is that if you are currently doing well enough, there is no reason to think that things will change. If you have been hunkering down, so to speak, fearing the worst, it is probably time to lower your guard a bit.

If you have been narrowly skating by in this long and lingering recession, then things are starting to look up. It looks like the economy is growing, albeit slowly, and that means things like lending, financing, and other money based systems should be getting better over the next year.

The two dark spots in all of this are housing and the job market. The amount of economic growth being seen is not enough to begin generating anywhere near the number of jobs needed to make up for millions of out of work Americans who lost their jobs. However, it does look less likely that solid companies will be dragged far enough down that they must lighten payrolls again.

Housing is still the big concern. Economic growth or no, foreclosure rates are still very high and lots of people are underwater on their mortgages. If you are just a bit underwater and want to stay in your home, riding this out is the way to go. If you are way underwater, it is probably time to look at all your options, including drastic measures. You want to be ready to recover when the economy does. Getting hit now makes you one of millions. Taking a hit a year or two after the economy starts to rebound puts you behind.

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Fed Keeping Interest Rates Low originally published at Personal Finance Blog - FinanceGourmet.com

New unemployment claims fell to a nine month low in October. This trend has been struggling to get going for several months now. However, the possibility of an improving job market is a good sign for the U.S. economy.

Update: Consumer sentiment also rose. That is a little bit more good news for the economy.

Unfortunately, the news isn’t anywhere good enough to declare an economic recovery. The “good news” about the labor market we have been getting for the last several months means more about the job market bottoming out than it does about it getting better. Essentially, if you were drawing a graph of the U.S. labor market, these last couple of months of good economic news and indicators means you can stop drawing your line down. It does not mean, however, that you can start drawing that line back up.

There are two major stumbling blocks now to an economic recovery. The first is the very unstable situation in Europe. What once looked like a problem for a couple of the continent’s weakest economies now looks like a full-fledged crisis for the entire European Union. Any collapse, or loss of faith, there and the U.S. economy will be pulled back under. The second issue rearing its head is the expiration of current payroll tax cut.

Established a temporary tax cut (aren’t they all?) the current tax cut reduced the amount workers pay for FICA (Social Security taxes) from 6.2 percent to 4.2 percent.

See information about small business FICA taxes.

That tax cut expires on December 31, 2011 and it means that millions of Americans will be surprised in January by lower take home pay just when they start getting their bills for the holiday shopping season. Nothing slams the breaks on a weak economic recovery like consumers that tighten their wallets and avoid spending.

Pretty much every reputable economist out there agrees that eliminating the payroll tax cut will not only reverse the stimulating economic effect it had, but will also act to slow growth, just when it is getting started.

Of course, like everything in Washington these days, extending the tax cut is caught up in partisan bickering by politicians who grow ever more loyal to their parties while caring less and less about what it good for the country and the U.S. economy. Time will tell if the party bosses can wring enough bragging rights from some sort of agreement to get the extension before it is too late. Even one round of smaller paychecks could have a chilling effect on consumer spending.

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Jobless Claims Continue to Fall originally published at Personal Finance Blog - FinanceGourmet.com

After facing the biggest customer backlash in recent memory over its decision to implement a $5 per month use fee for customers using a Bank of America debit card, the banking giant has reversed course and announced that it will not charge the $5 debit card fee starting next year. This news comes on the heels of news from several other major banks, like Chase and Wells Fargo, announcing that they would not charge a monthly debit card fee.

More recently, several regional banks, including SunTrust and Regions, that had already been charging a monthly fee to use a debit card had to abandon the fee once it was popularized by the media in the wake of Bank of America’s decision to implement the fee. One can only wonder how their customers reacted prior to BoA implementing the fee.

The lesson from all of this is that customers need to be very watchful of banking fees and charges. Do not just throw away those notices you get from your bank that are full of fine print, and carefully scrutinize your statements each month to ensure that no new fees are draining money from your accounts.

As a long-term solution, consider switching to a local bank with lower fees or a credit union. Credit unions reap certain tax rewards which allow them to profit without having to gouge deep into their customers to generate revenues.

Beware especially of your free checking account being subtly converted into a non-free checking account, without having the words "free-checking" removes from the name of the account. The current favorite is to implement or raise the minimum balance required for a "free" checking account. Whenever your balance drops below the minimum, you’ll be charged a fee. If you account drops below the minimum on a regular basis, that is the same thing as paying a monthly fee.

Again, watch your bank statements closely. While your bank can’t lie outright to you, they won’t make it easy to spot. Expect something financial sounding to throw you off the trail. Be sure that you know what every charge on your account is and call the bank to ask for an explanation of the ones you don’t understand.

Banks Charge High Fees Because They Can

As a former financial advisor I would review statements that people brought in. Oftentimes, they had no idea what they were paying or being charged. They just made sure that their balance never went negative and that was it. Everything else just slipped under the radar. This happened to both wealthy and lower net worth clients.

One client was paying $35 per month because they never set up a direct deposit that they were supposed to in order to get a free checking account. Turns out they had been paying the bank fee for so long, they thought it was one of their monthly bills!

Banks gouge customers with high fees because they can. When you don’t pay attention, fees slip by without complaint.

When you do pay attention, a cranky phone call is likely to get the fee removed. The bank knows that as long as you don’t close your account they can continue to charge you all the other fees you don’t notice or complain about. In fact, they know the odds are good that if they charge you the same fee in the future, you won’t complain about it.

Banks count on the fact that it can be a pain to transfer accounts. As long as they inflict small enough wounds to keep you from leaving, they win.

Don’t be a sucker. No matter where you bank now, open a second savings and checking account at another bank or credit union. You don’t have to use the accounts, just leave them there. If you ever do have to change banks, your new accounts are already ready and waiting. And, you’ll know if they are really free or not. If a mysterious charge appears, close the account and find a new bank.

Not all banks are terrible, but the ones that are aren’t really afraid of you leaving. Even if YOU leave, there are plenty of lemmings left to be led to the cliff.

New Bank Fees Coming

Make no mistake, Bank of America and other large U.S. banks have made promises and revenue projections that they cannot keep by earning money on banking. Instead, they must find ways to boost traditional revenue streams. Having already raised every fee they have to the maximum amount they think they can get away with, the only course of action is charge new fees, somewhere, somehow.

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Bank of America Cancels Debit Card Fee originally published at Personal Finance Blog - FinanceGourmet.com

The U.S. economy continues to grow at a very slow pace according to the Federal Reserve’s Beige Book. That isn’t good enough considering how deep the current recession is. At this rate, growth back to anything resembling an expansion would take a very long time. However, the good news is that the economy isn’t getting any worse for the time being.

The Beige Book is a summary of the current state of the U.S economy across all of the Fed’s districts and for the most part, all reports are of "modest" or even "slight" growth.

Inflation Not Happening

It seems that the highest "street cred" a Fed banker can have is to be an inflation hawk. Since 2008, however, inflation hawks have actually been Chicken Little’s. With the economy growing very slowly and many Americans still out of work, it’s hard to see where inflationary pressure could come from.

The just released Consumer Price Index (CPI) just confirmed that there is no real inflation anywhere to be found in the economy. The index rose just 0.1 percent. Prices excluding food and energy, both traditionally volatile pricing sectors that seem to move of their own accord rather than in step with other prices, actually rose at the slowest rate in six-months, suggesting that retailers have little to no upward pricing power in the months leading up to the holiday season.

In other words, the economy has to get moving again before anyone is going to have luck raising prices and that isn’t going to happen before Christmas. Look for a value priced holiday shopping season, but big discounts might be hard to come by as retailers won’t be reducing prices from higher profitability, growing prices, but rather from low profitability, stable prices.

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Economy Growing Slowly – Inflation Benign originally published at Personal Finance Blog - FinanceGourmet.com

Has Google Already Beating Groupon?

Not long ago, Google offered to buy Groupon for $6 billion. Soon thereafter, Groupon did another round of private equity financing that essentially paid off company founders and early investors such that they have already locked in sizable gains. That might be a very good thing since Groupon seems to be in trouble before it even goes public.

Update: Groupon has updated its IPO filing documents again. Follow the link for the latest.

Groupon’s IPO Filing

Groupon has already had to adjust the documents it originally filed in order to do an initial public offering (IPO) of stock. It de-emphasized a widely mocked financial metric that essentially didn’t count certain expenses. That isn’t a huge thing by itself, although it does potentially show what Groupon thinks of the sophistication level (or lack thereof) of those who would buy Groupon’s IPO.

Groupon’s management took the somewhat controversial step of trying to comment on all the negative publicity its IPO has been getting by sending out a company-wide email to employees saying exactly the kinds of things that you aren’t allowed to say during the SEC mandated “quiet period” before a public offering. Of course, they were shocked, SHOCKED, to find out that the email had been leaked to the media which ensured its wide, very public, dissemination.

No word on whether the SEC will take any action on the matter. (If not, look for plenty of other companies to have “accidental” leaks in the run-up to their IPOs.)

Google Offers vs. Groupon

Next up, Google decided to get into the daily deals / local discount business itself. It started with just a few markets, but recently opened in several others including here in Denver, where Google Offers offered $20 at the popular Tattered Cover bookstore for just $5.

(Disclosure: I bought one of the Tattered Cover Google Offers, although I have no affiliation with Google or the Tattered Cover other than as a customer.)

In other words, the copycats that Groupon has so effectively dismissed in the past are getting bigger and if that IPO doesn’t hurry, there might be some disturbing statistics showing that Groupon is not long for this world as anything other than a takeover target. (Paging Microsoft Bing.) Don’t count on a $6 billion bid, though.

On the other hand, if Google can’t break Groupon’s hold on the market, investors (and retailers) might be convinced no one can, in which case, Groupon stock would be a very good investment.

Which is it? Time will tell, but as I’ve noted before Groupon is too easy to copy. The only real question is has everyone else started worrying about that too, or will Groupon get through its IPO before anyone gets uneasy?

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Is Groupon Public Yet? originally published at Personal Finance Blog - FinanceGourmet.com