Q4 Is Banner - Q1 Is Search

I was very surprised to see the sharp selloff in Google after their Q4, which I think they did really well. But too many analysts thought that when Yahoo! had sold out their banner space then Google would also be making tons of money - wrong! This has nothing to do with each other. I will explain why in a second. Google did make a lot of money, but not enough to satisfy most analysts.

In Q4 two things happen:

1. Most advertisers concentrate their spending here
2. Internet usage starts to slow a little from mid November due to holiday season activities like shopping for presents, x-mas parties, religious functions etc. etc.
   

This means that the slightly lower inventory is quickly sold out on the biggest sites. Great if you sell banners like Yahoo! But Google feel the slight decline in search activity. They can't force users to search more. Also I can say from an advertising perspective that we don't necessarily change the price we are willing to pay for a click on Google's AdWords. I must confess that the product I work with (webhosting) not really is seasonal, but I believe that most advertisers have worked out the optimal price to pay for a click on Google. So when search activity is slowing up to Christmas, then less people click on Google's ads and in the end it means slower revenue growth for Google. This is for Q4 obviously.

What happens in Q1 is:

1. Advertisers just spend most of their budgets in Q4 and so did most people - so demand for advertising is smaller
2. Search has its prime quarter here - all three months have the heaviest search activity

When you know that most advertisers have an almost fixed price on their keywords on Google and search volume really climbs from Q4 - then you understand that Q1 really is the greatest quarter for the search business by far. Google proved it already last year, when their 2005 Q1 EBITDA rose 45% from their 2004 Q4 - a massive growth to say the least. Thursday night after market close we will see if they can do it again. Personally I believe that they will show a very strong quarter, but a smaller EBITDA growth than 45%. I expect Google to skyrocket in after hours sending it above $450.

You can see Google's Q1 announcement and webcast from here!

Disclaimer: Buying stocks and options are full of risk - make sure you make your own judgment and remember that it is on your own risk. Yada yada yada..