According to a report by Interactive Advertising Bureau and PricewaterhouseCoopers, online advertising revenues in the U.S. rose 11% to $12.1 billion in the first half of 2010, compared to the same period in 2009. Display advertising revenues increased by 16% to $4.4 billion, and search advertising revenues experienced a 12% gain to $5.7 billion during the same period.
Due to the improved macroeconomic situation, the online advertising market is seeing a revival. Advertisers have started to bid higher for advertising rates to capture the available advertising inventories on websites. This is leading to higher revenue per page view in the case of display related ads and higher revenue per search in the case of search related ads. We have already factored in the online advertising revenue growth for Yahoo (NASDAQ:YHOO), AOL (NYSE:AOL) and Google (NASDAQ:GOOG) for 2010; however, there could be more upside to these stocks, if the overall online advertising market growth continues in future.
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Potential upside to AOL, Google and Yahoo stocks
We estimate that Display advertising is the most valuable business for AOL and constitutes around 53% to the $25 Trefis price estimate for AOL’s stock. There could be an upside of 4% to AOL’s stock if its revenue per page view continues to increase in the future to reach around $3 per 1,000 page views by 2016, instead of the $2.65 per 1,000 page views that we currently forecast.
Similarly, we estimate that the search advertising business is the most valuable business for Google and constitutes around 73% of its stock value. There could be an upside of 5% to Google’s stock if its revenue per search continues to increase in the future to reach around $48 per 1,000 searches by 2016, instead of $44 per 1,000 searches that we currently forecast.
For Yahoo, we estimate that the search advertising business (including partner search) constitutes around 27% of Yahoo’s stock, while the display advertising business (including partner display) constitutes around 20% of Yahoo’s stock. Yahoo could also have a similar upside in case the overall advertisement market continues to grow in future.