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September 19, 2006

Yahoo harshes the mellow for online ads

Posted by David Hunter at 7:41 PM ET.

Yahoos shares dropped today and pulled the market and shares of other search companies lower when it reported weakness in online ad revenue:

Yahoo Inc. said on Tuesday it expects third-quarter revenue at the bottom half of its forecast range due to weakness from two of its biggest advertising segments, sending shares down as much as 13 percent.

Chief Financial Officer Susan Decker told investors at a Goldman Sachs media conference that Yahoo has seen “a little bit of weakness in the last few weeks” in auto and financial services advertising.

“It’s a new trend. It’s been two to three weeks and we don’t know yet if it’s an indicator of a broader slowdown,” Decker later told reporters at the conference.

Offhand, it’s easy to come up with reasons why financial services (think housing slowdown) and the auto industry (think US automaker difficulties) might not be advertising as much.

Automakers in particular have moved a large portion of their advertising to the Web in the last three years, but industry leaders like General Motors and Ford Motor Co. have been slashing billions of dollars in total costs as they grapple with losses in the North American market.

“It feels and smells like a macro” problem, rather than something specific to Yahoo or the Internet industry, said Martin Pyykkonen, an analyst with Global Crown Capital LLC.

“It would be naive to say that advertisers would continue to pour ahead on online advertising and cut back only on traditional advertising in the face of economic weakness,” he said.

Who knew that online advertising was subject to the ordinary laws of the market? Henry Blodget opines:

In coming days, a parade of analysts will eloquently explain why the trends that are hobbling Yahoo! won’t affect Google–Google’s revenue is pay-per-click, Google is a “must buy” for advertisers, Google has a much stronger market position, etc. Listen politely, but don’t believe it.

Google is now a $7 billion global business with one primary revenue stream: advertising. Google may do better in a recession than, say, a television network, but that doesn’t mean it will do well. $7 billion is a significant chunk of not only online advertising but all advertising, and if all advertising slows (or, worse, shrinks), Google’s revenue will, too.

I guess ad-supported software isn’t all upside.



Filed under Advertising, Ask.com, Coopetition, General Business, Google, Microsoft, Yahoo

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