Even Google's Not Immune To the Slowing Online Ad Boom

As reported in the New York Times, Google (GOOG) reported another bang-up quarter last week. No surprises there. But readers will recall that our research noted some slowing of the boom in online ad-spending. Can that be true with Google's break-through quarter?

Even though Google has the biggest ad network and the lion's share of online advertising revenues (one company recently noted that it may be earning as much as 1/4 of all online advertising revenue), the softness in online shows up in Google's revenue growth rate. If you look at the chart below, while Google continues to post growing revenue (with some seasonal variations), that revenue growth is slowing year over year. And this is while Google is building its market share of the online advertising market.

We saw the online ad softness hurt Yahoo's (YHOO) growth last week. And while Google is feeling the effect as well, clearly they aren't being hurt as much. But when a dominant market leader shows a declining growth trend, even when it is taking market share, that's a sign the market is changing. And with our research showing advertising buyers falling back on more traditional methods as their budgets get cut, and nearly every Web 2.0 company --including new entrants like Microsoft (MSFT) adCenter -- flooding the net with online ad capacity, we can expect more media company disappointments to come as earnings season wears on.

Full disclosure: I have no positions in Google, Yahoo, or any other internet/media company.

Comments

[sufiy sufiy]

When will the game "music chairs" begin? Who will be without the place? In order to Sell you need to have a buyer. If you are buying Google at 480.78, you are buying the company with following valuation from Hard Data on Google Bear Case:
FCF 2006 est 1.712 billion
GAAP EPS 9.44 USD
Revenue 10.4 billion
Market cap at 480.78 stands for 149,3 billion. After YouTube deal if stock will not move from 480.78 dilution will be +3.4 million shares wich will bring Market Cap to 151 billion.
So at 480.78 Google is "on sale" according to majority of analysts with:
2006 est MC/FCF=88.2, P/E=50.9, P/S=14.5 with growth in Revenue in single digits Q/Q and EPS growth +1.3% Q3/Q2 in slowing economy with online advertisement slowing growth reality.

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