This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Little Search Engines Can't

There's an old adage that a rising tide lifts all boats. But in the search industry, where the tides have been rising like crazy, the biggest boats are rising a lot faster than the smaller ones.

Ad spending on the Internet has been booming for the past year, and the fastest growth has been coming from search-related ads of the kind found among engines such as Google (GOOG) and Yahoo! (YHOO - Get Report).

Google's revenue, which is nearly entirely generated from search-related advertising, grew 93% in its latest quarter, while Yahoo!'s revenue, a mix of search and branded ads, grew 55%.

After the two big search engines reported first-quarter earnings, their stocks rallied. Over the past few weeks, Google has risen 27% and Yahoo! 12%. But smaller companies competing in the search space aren't doing as well.

LookSmart (LOOK - Get Report) is down 69%, FindWhat (FWHT) is down 73%, ValueClick (VCLK) is down 29% and Mamma.com (MAMA) is down 55%. Moreover, none of these stocks benefited from spillover rallies on Google's and Yahoo!'s stellar results.

What's odd about the lackluster performance of smaller search companies is that their revenues are growing fast. Until recently, none of them has been perceived to be the victims of Google and Yahoo!. Although many news stories have noted radio and newspaper stocks coming under selling pressure amid signs that the Internet is sapping away some of their ad business, small search companies have performed even worse.

"The market's big enough that a number of players can benefit from it now," says Aaron Kessler, an analyst at Piper Jaffray, which does banking with Google but not Yahoo!. "The interesting thing is it appears it's already turning into a two-horse race. It looks like Google and Yahoo! will continue to outperform and the second- and third-tier players will continue to underperform."

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,164.95 -251.90 -1.45%
S&P 500 1,994.99 -26.26 -1.30%
NASDAQ 4,635.24 -48.1670 -1.03%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs