Google Vulnerable to Shrinking Ad Dollar

"We are not making any specific market share or performance-based reductions for Google -- our reduced estimates are due entirely to the weakening macro-environment and its knock-on effect on advertising overall and dollar appreciation," he wrote.

Doug Anmuth, an analyst for Barclays, raised questions about some of Google's smaller advertisers who may be struggling in light of the current credit crisis.

"We have increased concerns about the long-tail of Google's advertiser base, those small businesses and mom-and-pops who have ramped up their search spending over the last couple of years but now may be allocating less or no money to advertising or may even be having trouble paying the bills," he wrote in his research. "We note that Google's bad debt expense increased from $14 million in the first half of 2007 to $51 million in the first half of 2008."

In past quarters, Google has shown confidence in its ability to withstand macro-economic troubles, but it recently started to acknowledge the possible impact.

In an earnings conference call with analysts in July, CEO Eric Schmidt introduced the company's chief economist Hal Varian for the first time to address concerns over the economy. Many on Wall Street took that as a sign that Google might not be a resilient as once thought.

Revenue grew by only 3% sequentially in the second quarter, and the company missed Wall Street earnings estimates; that sent the stock down nearly 10% the next day. It has yet to recover.