Business Valuations of Key Players in the Worldwide Online Advertising Market Widely Exceed Total Market Size

According to some data published on the PwC web site, Internet advertising segment insights from the Entertainment and Media Outlook: PWC, the likely size of the worldwide online advertising market should be worth more than $185 Billion by 2017.

If we add in another $30 Billion to this 2017 forecast, for the mobile advertising market (smart phones and tablets), then we come up with a total 2017 worldwide market forecast for online advertising of $215 Billion. To understand my reasoning on this 2017 forecast for worldwide mobile advertising, please visit Gartner Says Worldwide Mobile Advertising Revenue to Reach $11.4 Billion in 2013. I included a healthy 20% year-over-year increase in total worldwide consumption of mobile advertising products from 2016 to 2017.

But the combined business valuations as of 17:07 hrs on April 23, 2014 (3+ years away from 2017) for simply four of the major publicly traded players (Google, facebook, Yahoo and Twitter) in this market (conspicuously absent is Ali Baba, which is yet to go public, and Baidu) amount to approximately $589 Billion, or just about 174% more than the total 2017 market.

Perhaps readers will agree these valuations are unsustainable. Nevertheless, investors continue to buy up shares. While facebook was reporting its Q1 2014 earnings, today, the stock was up, after hours 5.66%, which amounts to a market cap for this business of somewhere above $180 Billion, or 84% of the total forecasted worldwide market size.

If one argues Google presents a wide range of products targeted to other markets, I would argue where are the compelling results for these other efforts? Having closely reviewed Google’s Q1 2014 conference call webcast over the last week, I have to say the combination of the spin off of Motorola Mobility, and relatively insignificant performance for the “other business” segments (Google Apps, cloud IaaS, and Chromecast) render the “Google is a diversified business” rather less than an accurate read on their business, at least as they report it in the current quarterly earnings statement.

It’s difficult to come up with any other conclusion, on this topic, than the valuations of these businesses are clearly highly inflated (in other words, the whole market is likely a bubble). Anyone with a position in these businesses might want to consider adopting a defensive strategy, and soon.

Disclaimer: I have no current position in any of the mentioned businesses in this post.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

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