About a month ago I wrote an article suggesting that with enough domain traffic data I could potentially predict a chunk of Google’s next quarterly earnings. After developing my financial model, I thought that I’d have a stab at Q3 2016.
The chart below reflects the quarter on quarter % change in payouts to domain owners (blue chart - left axis) and also Google’s Traffic Acquisition Costs (Yellow line – right axis) for each quarter since Q1 2015. Since Google has not released the Q3 data yet the yellow line stops short and is replaced by my red predicted line.
A couple of things I should say about the blue line. Since the line is the quarter on quarter percentage change (blue line) if everything is static then it should sit at the 100% level. This would indicate that each quarter was paid out exactly the same as the previous quarter.
Actual revenue numbers may change due to traffic volumes but if what advertisers pay and what Google passes on was the same each quarter then the blue line should sit at the 100% level. This means that when the line dips below 100% we are seeing an overall advertisers/Google payout drop for the quarter. Conversely if the line is above 100% then there is an increase in advertiser demand or Google is paying out more.
When we look at the sudden decline during Q3 then we need to ask ourselves what’s really happening here. Has advertiser demand dropped dramatically due to the summer season or has Google just paid out less? Due to the sharp decline it could be a combination of both factors....but let's dig away.
If we look at Q2 to Q3 2015 we can see that the overall payouts are relatively flat even though Google increased what it paid out to the channel by 1%. So if an increase of 1% effectively negated the seasonality factor back in 2015 when Google releases its Q3 data we should have a pretty accurate picture of seasonality….but I digress.
My goal here is to estimate what Google paid to the domain channel for Q3. Essentially the domain payouts contracted by 15% for Q3 which is actually in line with many domain investors’ expectations of the northern hemisphere summer decline. It just looks like a big drop because we came off a high rate of payouts at the end of Q2.
All things considered, I believe the Google TAC will be flat and the drop was the impact of advertiser seasonal demand. Where in 2015 this was largely negated by a higher Google payout, this time Google has passed on the pain.
I’ve drawn the red line in the chart to continue the yellow line so it will be interesting to see if I’m right or not at the end of the month when Google releases its actual quarterly earnings report.
If I am correct then I think it will be time to do a dive into more data to see what else domains can help us predict. The next port of call will be to a stock broker!