International: Online ad growth may be losing momentum

International: Online ad growth may be losing momentum

Author | Source: Advertising Age | Saturday, Jul 19,2008 8:08 AM

International: Online ad growth may be losing momentum

Just three months ago, it seemed as though the Internet advertising industry could get through this tough economy relatively unscathed. But in what may be a bad sign for a seemingly recession-resistant sector, several Internet companies have reported relatively disappointing earnings.

The giant in the space, Google, didn't grow as fast as analysts expected, and its shares dropped about 7 per cent on the news. It reported net income of $1.25 billion, or $3.92 per diluted share, up 35 per cent from $925 million, or $2.93 per diluted share, during second-quarter 2007. Of course, Google doesn't offer financial guidance, so there's a greater chance investors can be caught off-guard.

The company continued to milk the stronger international economy, which accounted for 52 per cent of total revenue, up from 51 per cent.

Google spreads the blame
Despite the troubles, Google executives didn't blame the economy or weakness in the online advertising sector, instead attributing the company's less-stellar-than-hoped-for performance primarily to financial moves and a bit to costs related to its acquisition of advertising service DoubleClick. However, signs from other companies, such as display-ad-heavy ValueClick, indicate the economy is having an effect on the sector.

ValueClick announced it was paring back its second-quarter guidance. The company now estimates growth will be in the low-single digits for 2008, compared with the first quarter's 17 per cent growth. Display and comparison-shopping business was proving particularly weak.

"Against a deteriorating macro-environment, online display advertising is being materially impacted, much more so than performance-based search advertising," wrote Citibank analyst Mark Mahaney. "We believe (ValueClick) is seeing display-ad weakness across almost all verticals." Such news, he added, could have negative implications for a company with a heavy display business, such as Yahoo.

Microsoft's mixed signals
Microsoft's stock price fell about 6 per cent after it reported somewhat disappointing profits today for its fiscal fourth quarter. Revenue at its online services division, which includes its ad-sales operation, grew 24 per cent, but the division still lost money, $488 million, in the quarter ended June 30.

EBay's shares tumbled almost 14 per cent today amid evidence that consumers were reining in spending. The value of goods sold through eBay rose only 4 per cent, and CEO John Donahoe blamed economic woes. EBay is one of Google's

largest advertisers.


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