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Google Search Ads Stronger Amid Slowdown?

Google earnings

While Google talks up its efforts to build new lines of ad revenue, its dominance in search should carry it through the current economic downturn, according to financial analysts.

Yesterday afternoon, Google (NASDAQ: GOOG) reported second-quarter earnings that fell short of the analysts' expectations, acknowledging for the first time that the economic slump had affected revenues. With Google's shares down 10 percent today, the Street has punished the search engine for its underperforming quarter.

Still, advertisers' shrinking budgets are likely to drive marketing dollars away from traditional media to search, which is more measurable and cost-effective -- and also happens to be the backbone of Google's business.

"As the undisputed leader in the search space, Google is best-positioned to benefit from the secular shift of ad dollars online, in our view, especially during the current economic headwinds," Jeffries analyst Youssef Squali wrote in a research note today. "Despite the sluggish economy, we believe search will continue to attract new ad dollars."

J.P. Morgan's Imran Khan agreed, writing in a research note that "search advertising will continue to perform well in a weak economy." Khan maintained his "overweight" rating for Google, indicating his view that the company will outperform its competitors.

In their reactions, the analysts accepted the rosy prediction that Google's Chief Economist Hal Varian offered on yesterday's earnings call: "During periods of slow economic growth, the last thing an advertiser wants to cut is its spending on search-based advertising," Varian said.

So while Google plans to ride out the near-term economic freeze on the power of its search business, the company made it clear that it doesn't expect search ads to dominate the balance sheet forever.

Google told analysts that the integration with DoubleClick continues smoothly, which it expects to produce aggressive growth in its global display-ad business. With a number of recent integrations, Google is moving toward offering advertisers a seamless media buy across DoubleClick's platforms and its own.

Google's ad family got a little bigger today, with the announcement that it had acquired ZAO Begun, a Russian firm specializing in search and contextual ad-targeting, for $140 million.


In foreign markets

Google reported that 52 percent of its revenue came from foreign markets in the second quarter, and with today's acquisition, the company will attempt to cut a deeper trench in a Russian market where it has been relatively quiet.

On yesterday's earnings call, Sergey Brin, Google's co-founder and president of products, talked up the company's ventures into the mobile advertising arena, notably its recent partnership with Japanese wireless carrier NTT DoCoMo.

"Japan is a very strong market for mobile search," Brin said, describing the country's pervasive use of the handset as a computing platform. Brin expected that exuberance to eventually spread to the rest of the world as devices and culture catch up.


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