Even Google Is Vulnerable

Is Google(GOOG Quote) really recession-proof?

Investors are asking that question amid growing signs that the U.S. economy may be headed for a downturn.

The answer is complicated. Google's search advertising business is perhaps as insulated from a downturn as Internet companies can get. In fact, Google could even get a bump if the economy tightens. And given the growing overseas markets, the company may be even further protected.

At the same time, as Google bets its future on expanding into new markets, investors should realize the stock's price is more exposed to a slowdown than it has ever been.

It's no surprise that advertisers tend to cut back during downturns, but the type of search ads that make up almost all of Google's revenue tend to avoid a hit.

The reason is twofold: For one, advertisers pay for search ads only when users click on them. That gives these types of ads more accountability than some other forms of advertising, and makes advertisers reluctant to pull the plug even in downturns, says Kevin Lee, the executive chairman of Didit, a leading search-engine marketing company.

"Cutting back means they may be turning down acquiring sales and customers, so even when there is some belt-tightening, this type of ad spending is usually the last to go down," Lee says. "It could potentially even go up."

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