Could subprime problems hurt search engines?

Posted Aug 28th 2007 9:30AM by Douglas McIntyre
Filed under: Forecasts, Bad News, Google (GOOG), Yahoo! (YHOO), Marketing and Advertising, Countrywide Financial (CFC), Housing

The search engine business would seem an unlikely place to be troubled by the trouble with sub-prime loans, but the Financial Times says think differently. Search firms including Google (NASDAQ: GOOG) and Yahoo! (NASDAQ: YHOO) could have exposure in a drop in sub-prime ads and "the financial upheaval could extend to other forms of credit as well as the credit scoring agencies that are also big advertisers online."

The FT quotes the head of MSN as saying "A lot of the subprime [advertising] has gone away."

According to data from Nielsen/NetRatings, Countrywide (NYSE: CFC), Low Rate Source, Experian, Privacy Matters, Capital One, and Lending Tree are all among the largest display and search advertisers on the internet..

Yahoo! may be especially vulnerable. Its ad revenue growth has slowed to about 10% with display being the great majority of its revenue. Its new Panama search product has been built in the hope of taking text ads from Google. But, if some of the larger financial advertisers in the category pull back, Yahoo! would be trying to get a piece of a shrinking pie.

Third quarter results for the search companies should tell the tale. While it is improbable that home loans and credit agency trouble could hurt internet titans, it may well happen.

Douglas A. McIntyre is a partner at 24/7 Wall St.