Reality Check: Online Ad Spending Is Not As Dead As You Have Been Told

If one company would be the judge, jury and executioner on online ad spending, it would be Google Inc. (NASDAQ: GOOG).  The problem is that Google is now so spread out that you cannot just use its online ad measurement any longer to value the company nor the industry.  A near pure-play in online advertising and marketing is ValueClick, Inc. (NASDAQ: VCLK). If you look at what this company said on Thursday night the conclusion would be that online advertising is not dying on the vine as so many reporters, analysts, and pundits try to tell you.

The move to mobile is an online advertiser’s demise. After all, how can you market to someone on a 2-inch by 4-inch screen?  Still, rumors of the death of banner ads and online advertising are grossly exaggerated if you just look around.

If you want more evidence that online ad-spending is not dead, look at AOL Inc. (NYSE: AOL).  Maybe it is not growing as it used to, but it takes more than an activist investor and a proxy fight to drive the share price recovery there.  The reality is that AOL’s business is not dying as so many reporters and analysts would have led you to believe.  The share price gain from the bottom in AOL has been more than 150%.  How dead does that sound for an online ad market?  The company is not growing, but to call it dying would be silly after a rally this large.  The company is also tendering for more shares as well.

After the close of trading on Thursday ValueClick said that it now expects its second-quarter revenue to be at the higher-end of its previously issued guidance, which was $155 million to $160 million.  The consensus was just under $157.3 million from Thomson Reuters.  ValueClick also said that its EBITDA would be at the higher-end of its range of $46 to $48 million.

The company also announced that it was going to boost its own share repurchasing efforts after having spent some $99.6 million to buy back about 5.9 million shares.  The company added $100 million more for buybacks.  The company’s cash and liquidity at the end of the last quarter was over $146 million and long-term debt was $157.5 million.

The bankers must be feeling good about ValueClick’s business as well because of a credit line increase as the total credit facility now consists of the following: 1) a $200 million revolver (previously $150 million) with an expected outstanding balance as of the end of the second quarter of $130 million; 2) a term loan with an expected outstanding balance as of the end of the second quarter of $42.5 million.

So again… The reality is that online ad spending is not dying as so many reports would have you believe.  The move keeps migrating to mobile as Mary Meeker recently showed how fast that growth is, but no one has won in mobile ads because the yield is so much lower in results over desktop internet ads.  Just look at Motricity, Inc. (NASDAQ: MOTR), a 2010 IPO which was supposed to help agencies win in the migration to mobile ads and extending the mobile reach with carriers and enterprises.  It is now a $0.61 stock valued at $28 million.

And what about the great Facebook, Inc. (NASDAQ: FB)?  How successful has it been in generating mobile ads?  Or any ads?  And what about Yahoo! Inc. (NASDAQ: YHOO)?  Everyone loves to hate Yahoo!, it is a dead business, and it is effectively without leadership. Still, its market value is nearly $20 billion and its revenue contraction is believed to be abating.

The reality is that mobile is still a frontier that has to be mastered by someone and it is a huge threat to traditional online advertising.  The problem is that most of the new up-starts in mobile that are the new paradigm are run by pimply faced kids who do not seem to mind that no money is made.  The mobile yields are far lower than online advertising for desktops and laptops but the consumer base is going more and more to mobile.  In emerging markets, that is particularly the case where so many internet users access the web ONLY by their smartphones or mobile devices. Still, online advertising is not exactly dying.

If online advertising was dying you would be seeing something else entirely in these stocks.

JON C. OGG