
Google Inc.’s
(NDAQ: GOOG) may have forked over 20 times DoubleClick’s estimated
revenues of $150 million, but the acquisition now looks like it could
pay off handsomely. The search giant wrapped up the $3.1 billion deal
yesterday after it received approval from regulators in the European
Union (see story).
Many believe that Google will be able to leverage its existing
businesses to make this acquisition a huge success. So, is Google a buy
now?
Google has always focused on textual advertising as it can be easily
quantifiable in terms of sales and is easily integrated into its search
engine. However, there is also something to be said for the so-called
“display advertising” business that seeks to promote brands more than
just generate sales. This is where DoubleClick steps in as it has
relationships with virutally every major online publisher and more htan
half of the online ad agencies.
The display advertising industry itself is worth around the same as
the textual advertising business. The three major players, including Yahoo! (NDAQ: YHOO), Microsoft’s (NDAQ: MSFT) MSN, and Time Warner’s
(NYSE: TWX) AOL, brought in over $10 billion in such advertising in
2007. Meanwhile, banners will account for more than 40% of the $19.5
billion expected to go to online advertising this year. All of this
compares to a mere $5 billion in revenues from Google from its textual
advertising business, in which it is the largest player.
The million dollar question is: How much can Google grow
DoubleClick’s business? Many believe the answer to that question is
“substantially” given the fact that the search giant already has both a
platform and relationships with thousands of publishers and
advertisers. The value then becomes very clear: If Google can take a
mere 10% market share, it could mean new revenues of well over a
billion dollars. Additionally, these revenues would be on a high profit
margin, so they would impact the bottom line.
Many investors are hoping that this is the case, since Google’s
textual advertising business has been waning lately. The acquisition
also gives Google more exposure to different publisher and advertiser
demands, meaning that it could convert itself to a one-stop shop for
online advertising and squeeze others out of the space. In the end,
these factors make GOOG a stock worth watching closely over the next
year as investors get a glimpse of just how valuable this acquisition
really was!
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