Q4 Search Spending Soft, Google’s Q1 Could Be Down (GOOG)


Citi analyst Mark Mahaney surveys some large search engine marketers. His conclusion: Consensus revenue estimates for Google are still too high, for Q4 and for 2009.  Mark also thinks Google’s Q1 revenue could be below its Q4 revenue, which would be the first time ever the search industry has shrunk quarter over quarter.

Mark still has a $450 target on Google (GOOG). We guess it’s possible the stock gets back there in a year, if the broader market recovers. But with the fundamentals still deteriorating, this seems a stretch.


We Attended The MediaPost Search Insider Conference in Park City, UT – The event included senior level participation from leading Search Engine Marketing firms and agencies, including Clickable, Covario, Enquiro, iCrossing, iProspect, Reprise Media, Resolution Media, SearchIgnite, etc… Also participating were Google, Microsoft, and Yahoo! Four key takeaways:

1) The Q4 Search Market Is Soft, Tho Not Falling-Off-Cliff Soft – Practically every participant we spoke with acknowledged the materially negative impact of the Recession on their business. We are modelling 3% Q/Q Net Revenue growth for GOOG. We did find one large SEM tracking a 0% Q/Q growth Q4, but far more consistent outlooks ranged from mid-single digits to mid-teens & higher.

2) Q1 And 2009 Could Be Materially Challenged – We sensed specific nervousness about the Q1 outlook and the possibility that Q1 could actually be the real inflection point quarter – i.e. the first negative sequential growth quarter ever for Search. We also interpret recent statements by GOOG execs and company actions as an acknowledgement of this material challenge.

 3) We Continue To Believe That 11% ’09 Revenue Growth Is Reasonable – While our 2% Q1 Q/Q growth assumption may be at risk, we believe that our Top-Down Online Advertising Model supports the 11% growth assumption. Specifically, our ’09 GOOG revenue growth outlook implies 7% Total U.S. Advertising decline, 100 bps of Online Penetration increase, and 300 bps of GOOG Market Share Gains, all of which we believe are reasonable.

4) GOOG Remains Far And Away The Leader In Search – In panel discussions at the Search Insider conference and in surveys taken of the participants, there appeared essentially no interest in shifting incremental Search budgets away from Google and towards Yahoo!, Microsoft, or any other Search Engine.

Reiterating Buy and $450 TP – Unprecedented Macro trumps all. But Long-Term Long Thesis intact. Excluding FX, GOOG is likely a mid-teens revenue grower in ’09, during the most severe economic conditions most of us have ever experienced. What does that say GOOG’s revenue growth is like post the recession? And then layer in material new revenue opportunities in Mobile & Display & Video, and, arguably for the first time, real GOOG opex discipline…