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Google’s UK arm is set to rake in more advertising revenue than Channel 4 this year.
It’s front page news on the Financial Times this morning – but it’s probably not much of a surprise to most of us to learn that Google has a bigger audience than C4. After all, few of us get to watch the telly at work, whereas Google has become a practically indispensable part of everyday office life. But it’s not just C4 that’s set to take a back seat to the internet giant. Media buying groups Mindshare and Initiative reckon that the search engine’s ad sales will surpass those at ITV1, the UK’s biggest commercial broadcaster, by the middle of 2008.
C4 chief executive Andy Duncan describes the move to online advertising as a “structural change” – in other words, there’s no going back. Sure, he might just be saying that to defend the fact that Google’s expected to get £900m of business compared to C4 group’s £800m this year.
But if he’s right – and it looks like he probably is – then what does it mean for investors?
The first thing to note is that Google’s victory over ITV in ad sales does depend very much on the group maintaining current growth rates. Google UK has doubled ad revenue every year for the past two years, reports the FT – so keeping that up would be no mean feat.
But it’s certainly not impossible either. As mentioned above, the internet is now a fixture of most of our working lives, and a growing number of people are connected 24 hours a day via broadband at home.
And it’s no surprise that advertisers are keen on the internet. It is in many ways a far better advertising medium than TV. Ad campaigns are cheaper for a start. They can be targeted more selectively, and responses can be tracked down to the very last click – which gives companies an extremely valuable data set to mine.
It’s also much easier for potential customers to act on an ad – depending on the product, you’re only one click and a credit card form away from an impulse buy. And the type of people who shop on the internet – while increasing all the time – are very much those that most advertisers want to reach – technologically savvy ABC1s, with the disposable income to spend on a broadband connection.
When you compare that the expensive broad brush medium of TV, you can see why more and more companies think online is the way to go, particularly as audience shares are battered by increased competition and cannibalised by digital offshoots.
So who stands to benefit from this ‘structural shift’? Well, we won’t be rushing out to buy shares in Google. The founders have done a great job of teasing Wall Street, and the site itself is a fantastic tool, but on a forward p/e of around 60, the shares are just too expensive, and likely to nosedive at any hint of slowing growth. As the advertising pie gets bigger, more and more competitors are going to try to grab a slice for themselves – there’s no guarantee that Google will maintain its pole position for long enough to justify its high rating.
Meanwhile, the broadcast sector is clearly facing tough times. ITV is still getting to grips with its content, and has no significant online presence to speak of. Rival BSkyB is locked in a land-grab battle with telecoms firms over the broadband market. It’s by no means clear who’ll win these ‘convergence’ wars, and in the meantime, the fight for customers promises to inflict a lot of pain on margins.
The groups best placed to benefit could be those companies who offer online advertising services. One Aim-listed stock that might be worth a look is ‘e-commerce specialist’ Internet Business Group (IBG) – last week it reported that sales for the year to October 31 would more than double to £13m, beating City expectations. On a forecast p/e of around 19.5, it’s priced for growth – but it’s hardly at Google levels.
Turning to the stock markets…
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The FTSE 100 closed 20 points firmer, at 6,149, but gave up some of its earlier gains following a weak start on Wall Street. The rebounding price of gold, copper and silver saw miner Xstrata make the biggest gains of the day, closely followed by Lonmin, BHP Billiton and Anglo American. However, the lower oil price saw shares in BG Group and Royal Dutch Shell end the day lower. For a full market report, see: London market close
Elsewhere in Europe, the Paris CAC-40 closed 22 points higher at 5,370, whilst the German DAX-30 was also 22 points higher, ending the day at 6,291.
Across the Atlantic, stocks closed lower as disappointing factory and housing data hit investor sentiment. The Dow Jones fell for the fourth day in a row, closing 49 points lower at 12,031. The Nasdaq lost 32 points to close at 2,334, and the S&P 500 was 10 points lower at 1,367.
In Asia, growing concerns over a US economic slowdown saw the Nikkei close 25 points lower today, at 16,350, with exporters such as Canon leading the declines.
The price of oil was lower again today following reports of increased supplies in the US. Crude oil was trading at $58.46 this morning. In London, Brent spot was at $56.68.
Spot gold was slightly lower this morning on light profit-taking, last trading at $615.75 compared to $618.30 in New York late yesterday.
And in London this morning, pub chain JD Wetherspoon announced a 9% rise in first-quarter profit, adding that Scottish pubs continued to trade well despite the smoking ban. Like-for-like sales increased 5.2% following the introduction of the ban in March. However, there are fears that the arrival of wintry weather could prove more challenging for pubs as smokers will be less inclined to use outdoor shelters. Shares in Wetherspoons had risen by as much as 3.5% this morning.
And our two recommended articles for today…
Three reasons why US house prices have further to fall
– September turned out to be a particularly ugly month in the continued erosion of the US property market: the median price of a new home fell 9.7%. But this is nothing compared to the likely speed at which prices will fall next year. Housebuilders may still be building – and Alan Greenspan himself may be assuring Americans that the darkest days are over – but there are three key reasons why it can only get worse. To find out what they are, click here: Three reasons why US house prices have further to fall
Why we need the gold standard
– Goats, pressed tea leaves, shells and gold – what do these have in common? They have all been used as money at some point. James Turk examines the history of money, from the first gold coins to the printing of a separate currency and the introduction of the gold standard, to show why the US dollar is unsound. To find out what a gold standard is – and why we need to return to it – see: Why we need the gold standard