Google’s earnings announcement on Wednesday, Jan. 22, prompted a spike in its stock price despite delivering some news that at first glance looked bad. What’s going on here?

Like many companies that have built their businesses on attracting a digital audience to serve largely digital content, Google is confronting and managing a massive shift in user behavior. Increasingly, customers are consuming content via mobile devices, including smartphones and tablets. Digital advertising providers are following consumers as they migrate from their home offices and work computers to their mobile devices, so an increasing share of digital advertising revenue, including paid search, also is shifting to mobile.

As this blog has noted before, there are two problems plaguing mobile advertising. First, there is a glut of inventory supply. Second, that inventory does not engage users as well as it does on laptops and desktops. Smartphone usage, with its tendency for short, focused bursts, just doesn’t lend itself to deep interaction with ads. The cumulative effect is that mobile advertising inventory is worth less than inventory serving traditional laptop and desktop users. For companies like Facebook and Google, that’s a significant challenge. It means they could grow or sustain their massive installed base of loyal customers but make less revenue from them as usage go mobile.

In Google’s earnings announcement, it reported a decline in one of its key revenue metrics: cost-per-click, or CPC. This is the price it charges advertisers for every click Google generates on a sponsored search link or other ad unit. It the quarter, Google’s CPC declined by six percent relative to the fourth quarter of 2011, but it increased by two percent compared to Q3’12.

So why did Google’s stock price jump after the announcement? As usual, investors reacted to both a snapshot of Google’s current business and what the company signaled about its future. Investors saw stabilizing CPC prices in spite of the headwinds affecting mobile advertising. Furthermore, Google has indicated that it will serve fewer ads to mobile users in an effort to preserve a better experience. That means Google is actively cutting mobile inventory. Less advertising supply should boost value and therefore CPCs.

The market clearly voted on this news, sending the stock price up. I’m not as bullish. Google didn’t talk much about the other big problem facing mobile advertising: the engagement problem. Google has enough consumer data to at least make an effort at innovating in mobile advertising as it did when it pioneered paid search, but if Google is using that data for that purpose, it didn’t emerge in the earnings call. In fact, CEO Larry Page talked about how he perceives mobile as an extension of a desktop experience, and that he is often disappointed by mobile sites for their simplicity. I couldn’t disagree more. Consumers use these devices differently, and advertisers must adjust accordingly. Seeing mobile as just a smaller version of the desktop won’t solve the engagement problem.

Still, if CPCs stabilize, it suggests that there is a way to address at least part of the mobile advertising economic problem, and that’s good news.