Facebook's Improving Ad Performance Can Spell Trouble For Google
September 19, 2012
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Google ( GOOG ) on Thursday received some humbling news as Businessweek reported that ads using browsing history on the service Facebook ( FB ) Exchange (FBX) were outperforming Google by a substantial margin. While this news is unlikely to impact Google's ad business in the near term, it gives Facebook a talking point after facing criticism on the growth of its ad business. As Facebook is still its early stages and is struggling to monetize its large user base via mobile ads, this information could trigger an influx of dollars into its advertising services. Since online ad budgets used by corporations tend to be deployed regardless of platform, we could see Google's revenue per search numbers decrease drastically as overall advertising dollars get split between these two tech giants. See our complete analysis of Google here Companies could spend less on Google Facebook advertising partners such as AdRoll stated that " advertisers used to getting $10 for every $1 they spend are making $16 for every dollar spent on FBX." Getting higher returns for every dollar spent will definitely entice advertisers to look towards Facebook to manage parts of their ad campaigns. Even though overall online ad spending is growing, Facebook's growth would decrease the growth of overall ad dollars that Google gets, even on its search offerings. As advertisers split up their ad spending across sites such as Google and Facebook, we could see a sharp decrease in Google's revenue per search going forward. You can assess the impact of an accelerated decline RPS on Google's stock price by using our tool below: Display ad spending to pass search While the total amount of money spent on search ad spending is expected to grow to $21.53 billion by 2015 from $14.83 in 2011, online ad spending on display advertising is expected to pass search spending in the same year. Even though search spending will increase at a substantial pace, this could spell trouble for Google over the long term as companies look to display to meet their advertising needs. On the other hand, this would play right into Facebook's hands as most of its revenues are from display ads. If it succeeds in building a superior display ad platform, it could see a major chunk of total online ad spending come its way. Overall, we stress that the increase in competition that Google is facing on its core offerings could spell trouble for the company. We will have to wait for a year or two to get a better idea about whether or not Facebook and the new initiatives that Microsoft is taking will come to fruition. If they do, they could spell trouble for Google going forward. We currently have a $661 price estimate for Google , which is approximately 7% below the current market price. Click here to Understand What Drives a Stock at Trefis Read more: http://community.nasdaq.com/News/2012-09/facebooks-improving-ad-performance-can-spell-trouble-for-google.aspx?storyid=174396#ixzz26u9ySCom
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Facebook's Improving Ad Performance Can Spell Trouble For Google
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