Net Hopes Hang on Google

For much of the past six months, there has been a raging debate between pessimists who argue that Internet-ad growth can't sustain its manic growth rates for much longer, and optimists who believe the slower growth in search engines like Yahoo! and Microsoft's(MSFT Quote) MSN (reborn as Live.com) has more to do with those particular companies than the industry at large.

In other words, the Internet pessimists see Google slowing down as well, and the Internet optimists see Google continuing to grow at the expense of weaker companies. Google's earnings report should settle that bet -- at least for the next six months.

The question is which camp -- pessimists or optimists -- can lay claim to being the realists.

Recent data have come down in favor of the optimists. Research firm eMarketer released its estimates for 2006 ad revenue, attempting to sketch out the Google growth story before the Googlers themselves do.

For the full year, Google's net ad revenue, or what it makes after sharing revenue with partners, will surge 65% to $4 billion, compared with the 18% growth at Yahoo!, whose ad revenue is forecast to reach $2.9 billion.

Piper Jaffray analyst Safa Rashtschy, often an analyst whose views are grounded in reality, is expecting Google to beat the Street's estimates, on revenue growth at least. "We expect strong volume trends, pricing gains and increased coverage/conversion rates coupled with monetization improvements and greater AdSense penetration to contribute to Google's performance," he wrote. Piper Jaffray has no current investment banking relationship with Google.