Google (NASDAQ:GOOG) is winning the battle for the hearts and minds of advertisers. Newspapers, as usual, are the losers.
The world’s largest search engine yesterday reported spectacular earnings. Net income in the second quarter was $2.51 billion, or $7.68 a share, compared to $1.84 billion, or $5.78 a share, in the year earlier. Revenue excluding payments to Google’s partners – the metric followed by Wall Street – rose 21% to $7.92 billion.
Newspapers face an uphill struggle against Google. According to the Newspaper Association of America, publishers sold $3.04 billion in online advertising in 2010, less than half of Google’s quarterly revenue. Though their digital sales are rising, newspapers remain primarily a print business. Last year, advertisers spent about $23 billion on print advertising, which though up 11% from 2009, was roughly the same level as in the early 1980s.
Gannett (NYSE:GCI), the nation’s largest newspaper publisher, and New York Times (NYSE:NYT) have been trying to transform themselves into digital companies with mixed results. Gannett’s first-quarter digital revenue rose 12% to $157.6 million, while print publishing fell 6.2% to $929.8 million. Meanwhile digital revenue at NYT rose 6.1% to $95.9 billion, while declining advertising and circulation numbers pushed down revenue in the News Media Group by 3.2%.
The results from Google prove that the newspaper industry’s struggles are far from over.
Gannett, whose shares have dopped 10% this year, reports quarterly earnings on Monday. Analysts are expecting earnings per share of 57 cents versus 61 cents a year ago. Revenue at the publisher of USA Today is expected to drop 2.4% to $1.33 billion. Gannett announced it would lay off 700 workers in its newspaper business last month.
Wall Street continues to be down on the New York Times even though the publisher repaid its $250 million debt to Mexican billionaire Carlos Slim ahead of schedule. Shares of the New York-based company are down more than 12% this year. Analysts are expecting the company to post earnings per share of 9 cents versus 18 cents a year ago. Revenue is forecasted to drop 2% to $578.04 million.
Interestingly, Wall Street analysts believe that both stocks have room to run despite their mediocre outlooks. Their mean price target for Gannett is $18.63, ahead of Friday’s $13.48 close. New York Times, which closed Friday at $8.67, has a median price target from Wall Street analysts of $10.
If the economy doesn’t nosedive, the outlook for advertising is pretty good. Global ad spending is expected to hit $506 billion, in 2011 a 4.8% increase over 2010 spending of $483 billion. Spending is expected to hit $540.3 billion in 2012 thanks to the Olympics and the U.S. presidential election, according to GroupM. U.S. spending is expected to be $148 billion in 2011, a 3.8% increase over 2010, and reach $154 billion in 2012.
Google and other online players, however, will gain an increasing share of advertising spending, leaving scraps for newspapers.
