The Consumer is Dead, Long Live the Consumer

Quick Apology: Some of today’s posts should have been written yesterday, but (here’s irony for you) we were unable to post this article about an Internet stock to our Internet stock site because our Internet was out. All day. Hopefully our insights will be worth the wait.
Don’t say we didn’t warn you. Twice, in fact. But when the consumer slows, advertisers don’t spend money. We saw the early warning sign in direct mail and in newspapers, and the question was whether it was because of share loss to online media or whether it was due to an overall consumer/advertising slowdown that would also affect online media. Yahoo (YHOO) weighed in Tuesday afternoon with their numbers, and although there were certainly some company-specific issues there we don’t think the early read is promising for Google’s (GOOG - Annual Report) report tonight. We certainly aren’t stepping up to pay 42x earnings for it.

Yes, we know Google gained market share.

Google accounted for 44.7 percent of U.S. online searches in June, up from 36.9 percent in June 2005, writes Internet Retailer, citing comScore. Yahoo, MSN and Ask search share declined from a year ago. MSN, in third place, declined most, dropping to 12.8 percent market share from 15.7 percent. Yahoo’s share dropped to 28.5 percent from 30.4 percent a year ago; Ask’s share decreased to 5.1 percent from 6.0 percent.

Yahoo also said as much on the conference call:

We don’t have the information for our competitors in terms of how they are doing. But I think we have been very clear for more than a year that we thought our system was not performing as well as our competitors’ on the RPS that we’re converting on our network. So on a revenue basis, we clearly lost market share.

With 57% greater share of searches, plus a higher revenue per search, the consensus estimates of $1.7 billion in ad revenue are likely in the bag. Also in Google’s favor is the continued delay of Yahoo’s competing third-party advertising system.

Yahoo also said that it wasn’t clear yet whether there was a consumer/economic slowdown going on:

Let’s say it’s early to tell whether there will be an impact. If we were to see it, it wouldn’t – we certainly haven’t seen anything on our Q4 commitments, as you indicated. It’s our brand business, the graphical business in which we see the most forward commitments. But retail is not as large a category as some other ones in that business. Where it would be more visible would likely be more in the e-commerce area, which is more on the search side, and that remains to be seen, and we’ll watch those trends carefully, as you do.

So maybe it’s true that Google is taking all of the advertising market share from everyone. You just won’t catch us betting on it.

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Topics: Google (GOOG), Stock Market, Yahoo! (YHOO) | RSS

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