Majestic Research

Barron's Online

Yahoo: Q3 Paid Search Looks Good, But Banner Ads Weak

By Eric Savitz
Published: September 11, 2007

Yahoo’s paid search advertising in the third quarter is tracking about 6% above the second quarter level, “driven entirely by search volume growth,” according to Majestic Research analyst John Aiken. He notes that 6% growth is above the high end of the estimated Street range of -13% to up 5%, with the consensus of -4%.

But—and this is a very large but—he also says that branded/banner advertising is tracking down 10%, which is well below the estimated range of -4% to up 7%, with a consensus of up 3%.

Aiken also noted the stark contrast in user search trends at Yahoo and Google (GOOG). Aiken notes that Yahoo gained an average of less than 10,000 domestic unique visitors per month for its search service from July 2006 to July 2007; over the same span, Google Search gained an average 1.3 million domestic unique visitors per month. That’s a big problem: while Yahoo may be able to improve query monetization with Panama, they also need to find a way to staunch the bleeding in search market share. As Pacific Crest’s Steve Weinstein noted today in discussing current online ad trends, “While Panama is working operationally…the limited search volume relative to Google leaves [advertisers] unmotivated to spend more on Yahoo.”

Yahoo today is up 27 cents at $23.57.