Google's Burden Grows Heavier

Earlier this month, Laura Martin of Soleil/Media Metrics raised her estimates and rating for Google to hold, a little over a month after initiating coverage on the stock with a sell.

As for the tea leaves that Yahoo! left for Google analysts to read, Yahoo! said that net marketing revenue in the third quarter grew 38% on an organic basis from the corresponding quarter one year earlier, beating second-quarter organic growth of 35%. Most of that growth is believed to come from paid-search advertising, as opposed to traditional, branded display advertising. The volume in the search business was greater than expected, Yahoo! indicated. "Search was the highlight of the quarter, driven by both pricing expansion and volume growth," noted Youssef Squali of Jefferies.

Now the question is to what degree the performance of Yahoo!'s search business in the third quarter will predict Google's results -- a calculation that's complicated by Yahoo!'s not breaking out detailed information about its search revenue. Mahaney calculates that search revenue at Yahoo! grew 12% from the second quarter to the third, with most of that growth coming from international properties. Rohan, meanwhile, estimates that revenue from Yahoo!'s search partners, excluding Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks), grew 6%.

For the record, analysts surveyed by Thomson First Call are expecting revenue of $454 million for the quarter, a figure that excludes traffic acquisition cost, or the money that Google pays other publishers to run its advertising on their Web sites. (The revenue figure also includes a small amount of licensing revenue, sales whose growth rate lags that of advertising.)

The consensus number represents 7% growth from the $423 million in revenue ex-TAC that Google reported for the second quarter. Rohan says he expects 9% sequential revenue growth, or $462 million in net revenue; Mahaney, forecasting search revenue growth of 13% -- offset by a $5.5 million drop in licensing fees -- is forecasting $467 million in revenue.

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