Earnings Takeaway: Signs Of An Online Ad Recovery

Yellow Light

The latest financial results from online heavyweights Google (NSDQ: GOOG) and Yahoo (NSDQ: YHOO) show one thing pretty clearly: The online ad market seems to be getting better — and definitely is no longer falling. Anybody who listened to Google CEO Eric Schmidt’s remarks and did not get that impression wasn’t paying attention. (Just count the number of times he says “happy” in the transcript).

But Google wasn’t alone: Yahoo’s results, too, showed that the market was improving, albeit more subtly. While the company’s revenue fell 7 percent year-over-year, the company managed to eke out a revenue increase compared to the second quarter of the year; notably, sales of display ads were down 8 percent year over year and actually up two percent compared to the second quarter. That was better than most analysts had expected. (Search ad revenue was down a staggering 19 percent, but again the quarter-to-quarter results showed signs of stability).

CFO Tim Morse’s comments — while lacking Schmidt’s exuberance — also hinted at a recovery. Asked about the two percent increase in display ad sales, he said, “I think … it’s a sign, again, of the economy starting to loosen up a little bit and brand spending starting to happen a bit more.” He also said the company would benefit as companies boosted ad spending ahead of the holidays.

Next quarter, Yahoo is still projecting sales to be down year-over-year. But quarter-to-quarter, the company says it expects to see sequential sales growth for the second quarter in a row. As for Google, which is much less dependent on display ad sales, expect sequential and year-over-year increases in sales. Those improvements seem to be in line with the majority of recent ad forecasts, which indicate that while the worst is over, a real bounce back is still at least a year out.

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