Valassis: Online Advertising Victim or Canary?

Recently-added watchlist member Valassis Communications (VCI) revised its earnings guidance negatively this morning. The company attributed this shortfall to continued softness in Free-standing Insert and Neighborhood Targeted page volumes. Both segments are also experiencing pricing pressure.

Targeted ads and inserts are both areas that could be suffering at the hands of on-line advertising outlets, as the new media version may simply be more effective at reaching targeted consumers than the old. Proponents of this theory could point to the pricing pressure and infer that some of it may be due to the new options available to advertisers. This secular story is well known, and the ongoing shift of marketing dollars from newspapers and television into the Internet is a major contributor to Google’s share price.

Of course, the other side of the argument is that ad-driven business models are all highly cyclical and consumer dependent. With the consumer up to its eyeballs in debt and the housing market slowing, consumer cyclicals may be due for a slowdown. In this case, which is supported by the softness in volume, all ad-driven business models could suffer - Google included.

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