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    Will Google’s Q3 Earnings Offer a Window View to the Recession?

    Written by

    Clint Boulton
    Published October 15, 2008
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      Tomorrow could be a telling day for Internet stocks, with Google slated to report third-quarter earnings. It could also tell us nothing, if, as some reports suggest, Google’s search advertising sales may not be severely impacted by the recession.
      As I noted last week, Citi Investment Group expects Google to announce $4.47 billion in net revenue and $4.77 in non-GAAP earnings per share, compared with consensus expectations of $4.76 billion and an EPS of $4.81.
      Citi’s Mark Mahaney also put a healthy price target of $590 on Google, which is currently trading at $345, or less than half of its stock value from this time last year.
      If Google beats expectations, it’s hardly proof that online advertising isn’t suffering from a recession. All it may well suggest is that search advertising, Google’s main moneymaker, is for now better positioned compared to other online ad areas. Mahaney noted as much:

      “GOOG remains one of the best plays off the secular growth in Internet advertising; GOOG is the market share leader – and is gaining share – in arguably the most dynamic part of Internet advertising – search, which appears to be less impacted by the current macro economic environment.“

      That comes in stark contrast to the display advertising market, led by Yahoo. Some analysts are telling the New York Times and others that Yahoo, which announces earnings Oct. 21, could suffer from weak display ad sales, the one area of advertising Yahoo soundly leads.

      These estimates, compounded by Yahoo’s own 45 percent stock drop since mid June, could get ugly for Yahoo.
      AdGooroo has different stats. The online marketing researcher claims Google’s ad coverage dropped to its lowest levels in August and September, suggesting that those two months may have been weak. Despite this hit, AdGooroo says Google enjoyed a three percent increase in its advertiser base.
      However, Microsoft’s (Microsoft?!) Live Search has grown its advertiser base by almost a third in one year. AdGooroo founder Rich Stokes said:

      “MSN looks to be in a strong position thanks to their ability to retain existing advertisers and bring in new ones in droves despite an uncertain economic environment.“

      Yahoo, everyone’s favorite whipping boy these days, saw its base drop 2.5 percent, which AdGooroo said could be a result of Yahoo’s waiting for the Justice Department to approve its ad-sharing deal with Google. Seems risky to wait, no?
      I’m not sure I buy Adgooroo’s guidance. In fact, I’m not sure I buy any of it until I see Google’s results tomorrow and Yahoo’s next week.

      So, I expect Google to do well tomorrow, and I’m hoping for more info on display advertising vis-à-vis YouTube, along with some color on Android’s progress in getting into other phone carriers’ hands.
      TechCrunch is offering the classic bellwether, “how Google goes determines the rest of the market,” spiel, noting that if Google continues to make purchases it could buoy the long tail.
      I can’t find fault in that. But all of these predictions could be premature.
      We barely scratched the surface of this new recession, so I think it’s unwise to judge the latest quarterly ad sales results as an indicator of where we’re headed in the Internet economy. The following two or three quarters will paint a broader picture of the online ad landscape.
      Until then, chin up and fingers crossed.

      Clint Boulton
      Clint Boulton

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