I have read a lot of speculation about what to make of Yahoo!’s recent statements about seeing a slowing growth in Internet advertising spending. On Tuesday the company reported a 38% drop in profit as sales growth fell to the lowest in four years. Is Yahoo!’s problems company specific? If not, does it mean that Google will disappoint too when the company releases its earnings on Thursday? 

A few weeks ago, Yahoo! announced that advertising revenue from the financial services and automotive sectors had weakened and that Q3 revenue was now expected to at the low end of earlier guidance range. This caused all kind of ruckus among financial analysts. Was the guidance from Yahoo! and other data consistent with the start of a general market slowdown, one that will likely get worse if housing prices continue to fall? On Tuesday it was confirmed that Yahoo! indeed came out with disappointing quarterly results and the stock price went down slightly. However, positive comments from the company management caused the stock to surge nearly 5 % in extended trading and, in the end, it is hard to make any larger economic predictions because of the report. 

“I am not satisfied with our current financial performance and we intend to improve it”, said Yahoo! Chief Executive Officer Terry Semel on a conference call with investors after the report.

What is more, Yahoo! and Google are very different companies. One indication of that is that shares of Yahoo! are down 38% this year while Google is up 1.4%. Another positive indication, as far as we can tell, is that YouTube accepted to be paid in stock and not cash, when purchased by Google last week. There are tax considerations, but any respectable investment bank would have advised YouTube to take at least a portion of the amount in cash, unless they had some insight into future performance.   

However, many analysts expect a slight "softness" in Google’s Q3 report on Thursday. There is a heavy reliance on advertising in Silicon Valley now and some big advertisers have started to cut back on advertising due to economic worries. Google should at least feel some of that.

Internet analyst turned blogger Henry Blodget’s prediction: “Very modest upside--say, $1.83 billion--plus some vague but cautious remarks that will scare the bejesus out of people.  No new high and stock soon back to $400.  Lower if there's any sign of fundamental deterioration.”

Google was on Tuesday trading at $421.

Joakim Baage

Related Link:

Yahoo's Q3 Report