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.
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