Google aims for big ad revenues with new formats

Tue Dec 1 2009, 13:08 PM UTC

Google has rolled out a series of new ad formats in the US in response to increased competition from rivals including Amazon and the pairing of Microsoft and Yahoo!. Google is using new ad techniques such as adding a movie trailer to searches for films. It is also experimenting with ads that compare promotions for a product or service when a related search is performed. The company is also incorporating more images, videos, maps and links into its ads.

The new ads cover a much bigger portion of Google's search results page, which should lead to more click-throughs and higher revenues. The move has led analysts to increase their prices on Google stocks, with Needham analyst Mark May raising his price target to USD615 from USD600. Broadpoint AmTech analyst Ben Schachter raised his by USD40 to USD650.

"Over the past few weeks, Google has quietly made the most significant changes to its ad monetisation efforts in years," says Schachter. "These ad format changes will have a meaningful impact on revenue in Q4 and beyond."

Schachter has also raised his Q4 revenue forecast by 2% to USD4.91bn, while boosting his earnings-per-share estimates by 3% to USD6.74. For 2010, he has increased his outlook to USD27.47 per share, up from USD26.69.

However, Schachter warns that Google should be wary of cluttering its search pages, especially given consumers have come to expect a clean layout from the company. He says he expects Google to continue adapting its ad presentation until it finds a way to present more ads without distancing users. A global roll-out of the new ads is expected in the future.

The new ad formats are part of a wider strategy to bolster Google’s position in the global ad sector. It hopes to boost its share of the display ad market with its recent acquisition of Teracent. The firm is also looking to mobile advertising as the increasingly lucrative smartphone and app markets continue to grow. The wider ad focus should allow Google to reap the benefits once the ad market picks up following the economic downturn. However, the company appears to have barely felt the effects of the slump, with its ad revenue up 14% year-on-year in Q3.

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