Friday, February 23, 2007

Calls of Note Part 2

Two notes out on Google (NASDAQ:GOOG) this morning.

- Cowen believes one of the reasons that Google is trading off its recent highs is a series of setbacks in non-search initiatives, especially in video. YouTube talks with Viacom and CBS ended unsuccessfully, and Viacom has made a separate deal with Joost (an online video startup backed by the founders of Skype). Firm believes these concerns are overdone because: (1) their DCF analysis indicates that YouTube will not have a meaningful impact on Google's valuation, even if it is highly successful (search advertising is the overwhelming driver of value in their view); (2) firm believes YouTube will eventually sign deals with major content owners; and (3) it is way too early to expect YouTube, which launched 22 months ago, to generate meaningful revenues (it took five years for Google revenues to begin to scale). Firm is maintaining Outperform rating.

- BofA notes that during a Q&A discussion at BofA's Tech conference today, Tim Armstrong, Google's VP of Ad Sales in North America discussed some of the growth opportunities for Google in both the near and long term.

Significant room for growth in the US.: Google believes it is well-positioned to capitalize on the disparity between the Internet's share of media usage (13% Pew estimate) and the % of ad dollars spent online (5.4% BofA estimate). Google mentioned growth in the US is being driven by increasing numbers of advertisers as well as incremental spend per advertiser through monetization of their respective long-tails.

Branded advertising share may be underestimated: Google noted its efforts in online branded advertising were progressing well and that it has a competitive market share. Google's multi-product campaign with Saturn Aura (including search, maps, and video) could be a model for future integrated branded efforts. In addition, Google is partnering with creative agencies to design and run similar campaigns at scale.

Yahoo!s Panama could lift all boats: Google noted that a successful launch of Yahoo!'s new search marketing platform (Panama) could be a net positive for Google and the industry as it offers search advertisers an additional advertising channel. Our channel checks indicate mostly positive advertiser feedback from the transition to Panama.

Notablecalls: Neither of the notes contains anything new. For you Google fanatics out there!

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