By Scott Morrison Of DOW JONES NEWSWIRES SAN FRANCISCO -(Dow Jones)- The slowing economy appears finally to be taking a bite out of Google Inc.'s (GOOG) growth, several search engine marketers indicated Wednesday as shares of the Internet giant hit three-year lows.
Weak consumer spending and restraint among some advertisers have created the most challenging environment the Mountain View, Calif., company has ever faced in its 10-year history, said the marketing specialists who place ads that appear next to Google's search results.
While none would comment directly about the impact on Google business, search engine marketers said the unprecedented economic conditions were taking a toll, especially in areas such as financial services and luxury goods.
"We see there are fewer clicks and fewer conversions," said James Beriker, chief executive of Efficient Frontier, the largest search engine marketer. "Everybody is challenged in this market."
Google makes almost all of its money by attracting users of its search engine to click on the advertisements that appear next to the search results. If those clicks lead to increased business for the advertisers, then the return on investment from those ads increases and marketers are willing to pay a higher price for that placement. However, if the number of clicks and actions from those clicks decline, then that could send ad prices lower, hurting Google's margins and revenue growth.
A growing awareness that Google isn't immune to the current economic environment has prompted a handful of Wall Street analysts to cut their fourth-quarter and 2009 estimates for Google over the past few days. Goldman Sachs, Citigroup and Collins Stewart have reduced their estimates, citing an increase in negative data points since the company reported third-quarter results last month.
"We think deceleration in search spending is driven more by soft consumer demand than by marketers cutting budgets," said Barclays Capital analyst Doug Anmuth. "Checks indicate savvy marketers want performance-based vehicles more than ever," said Anmuth, referring to Google's ability to show the effectiveness of advertising through it.
Anmuth forecast that Google's fourth-quarter net revenue would essentially be flat compared with the third quarter. Others suggested Google would register low single-digit percentage quarter-on-quarter revenue growth, but that still amounts to a sobering turn for a company known for dramatic growth. For example, in the recently reported third quarter, Google's revenue rose 31% from the year before, although it was up only 3.1% from the previous quarter.
As a result of Wall Street's increasing pessimism, Google shares have fallen more than 12% this week and are trading below $300 for the first time since October 2005. The stock, which traded as low as $287.76 Wednesday, closed at $291 and is down 58% year to date.
Google, which doesn't issue guidance nor discuss its share price, declined to comment.
Confusion In Search Market To be sure, some search engine marketers were slightly more optimistic about the state of the search advertising market. On the positive side, advertisers are competing more aggressively for consumers' attention, driving up the prices that Google charges per paid click, said Joshua Stylman, managing partner at Reprise Media, a search marketing firm owned by advertising giant Interpublic Group Inc. (IPG)
But while the cost per click is going up in some sectors, Efficient Frontier's Beriker said, that isn't necessarily the case across the board. "There is a significant amount of confusion about what is going on in the market," he said.
Kevin Lee, chief executive of Didit.com LLC, one of the largest search engine marketing companies, said he was seeing "some systemic weakness" but not in every industry. Among the weaker performers, he said, were ads for financial services and luxury goods, while other sectors were still seeing growth, such as ads for discount retailers and health-care products.
"Many of our clients are putting aside significant budget increases to fight for whatever holiday search traffic occurs," he said.
Stylman, like other search engine marketers, was quick to point out that, while some advertisers are cutting their overall marketing budgets, they are allocating more dollars to the digital realm and specifically to search ads.
"I don't want to go as far as saying Google is recession-proof, but they are much more recession resistant that almost any other business," Stylman said. "This is not 1999. The bottom is not going to fall out from under Google."
-By Scott Morrison, Dow Jones Newswires; 415-765-6118; scott.morrison@dowjones.com
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(END) Dow Jones Newswires
November 12, 2008 17:03 ET (22:03 GMT)

Publié le 12 novembre 2008 Copyright © 2008 Dowjones