Web May Not Save Newspaper Stocks

Most of the shortfall is related to Shopzilla, where the cost of buying traffic through Google and other paid search engines has become unprofitable because of dramatic inflation in keyword pricing.

SSP management is taking what it claims is a self-inflicted wound by giving up keyword purchased traffic in favor of raising its marketing spending to attract direct traffic. Current 2008 estimates assume this strategy will be successful, but that seems like an optimistic assumption, given how rapidly revenue growth stalled and margins contracted.

Web Shopping Near a Plateau?

Potentially adding to the pressure is a dramatic slowdown in the rate of growth of online shopping. According to an article in Sunday's New York Times, online sales growth has decelerated each year since 2004, growing a little over 15% this year. By 2009, JupiterResearch expects online sales growth to slow to under 10%.

With online sales slowing, keyword pricing rising and marketing expenditures to attract direct traffic dramatically accelerating, I'd say there is a real question about future profits at Shopzilla and the value of the asset. Of course, there are believers in online comparison shopping. Just last week, I wrote about the purchase of Nextag.com, the No. 2 comparison shopping site, by Providence Equity.

The boys from Providence are pretty smart, so despite my skepticism, the reality is that the jury is out. I'll stick to my guns, though, and bet Cody that barring a takeover, SSP sees the $30s before it sees the $50s.

Editor's note: This column by Steve Birenberg is a special bonus for TheStreet.com and RealMoney readers. It first appeared on Street Insight on June 18 at 8:48 a.m. EDT. To sign up for Street Insight, where you can read Mr. Birenberg's commentary in real time, please click here.