Friday, February 25, 2005
Searching for search stocks on sale - Feb. 24, 2005:
"...Sure, growth has slowed. But it didn't exactly fall off a cliff. Online ad sales were up 28 percent in the third quarter from a year ago and 24 percent in the fourth quarter. The 'problem' for investors is that this pales in comparison to the 40 percent annual growth rate in the first half of the year.
But the slowdown shouldn't be a huge shock. The third quarter in particular, which includes the summer months, is typically weaker for the search industry and both Yahoo! and Google said last year that they expected this trend to continue.
'The world hasn't ended. There is seasonality in online advertising. That's not surprising,' said John Tinker, an analyst with ThinkEquity Partners.
That brings us to concerns about the first quarter and beyond. David Garrity, an analyst with Caris & Co., concedes that keyword pricing in the first quarter is probably going to soften a bit as some advertisers balk at what they deem high rates.
But he argues that this weakness won't last for long. In an age where more and more TV viewers are using TiVo and digital video recorders to zoom past commercials, the Internet has emerged as a more viable way to target consumers. So the online search companies have leverage.
'Traditional means of advertising aren't working and there's no other game in town. Where the consumer goes the advertiser must follow so this pushback is merely a temporary phenomenon,' Garrity said.
What Thursday's dumping of search stocks really demonstrates is not a major deterioration in fundamentals but that any momentum stock trading at a ridiculously high multiple is subject to a correction at any hint of a slowdown in growth. Before Thursday's sell-off, Google and Yahoo! were trading at about 50 and 60 times 2005 earnings estimate..."
"...Sure, growth has slowed. But it didn't exactly fall off a cliff. Online ad sales were up 28 percent in the third quarter from a year ago and 24 percent in the fourth quarter. The 'problem' for investors is that this pales in comparison to the 40 percent annual growth rate in the first half of the year.
But the slowdown shouldn't be a huge shock. The third quarter in particular, which includes the summer months, is typically weaker for the search industry and both Yahoo! and Google said last year that they expected this trend to continue.
'The world hasn't ended. There is seasonality in online advertising. That's not surprising,' said John Tinker, an analyst with ThinkEquity Partners.
That brings us to concerns about the first quarter and beyond. David Garrity, an analyst with Caris & Co., concedes that keyword pricing in the first quarter is probably going to soften a bit as some advertisers balk at what they deem high rates.
But he argues that this weakness won't last for long. In an age where more and more TV viewers are using TiVo and digital video recorders to zoom past commercials, the Internet has emerged as a more viable way to target consumers. So the online search companies have leverage.
'Traditional means of advertising aren't working and there's no other game in town. Where the consumer goes the advertiser must follow so this pushback is merely a temporary phenomenon,' Garrity said.
What Thursday's dumping of search stocks really demonstrates is not a major deterioration in fundamentals but that any momentum stock trading at a ridiculously high multiple is subject to a correction at any hint of a slowdown in growth. Before Thursday's sell-off, Google and Yahoo! were trading at about 50 and 60 times 2005 earnings estimate..."
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