Can't Blame Yahoo's Problems on Real Estate Ad Market

Yahoo (YHOO) is getting crushed lately. The stock is off over 40% from its 52-week high. Analysts have been tripping over themselves to downgrade the stock as the company makes known the softness in financial and auto advertising sales. The latest stated culprit? The bursting real estate bubble.

RBC Capital Markets analyst Jordan Rohan (the guy most notable lately for declaring MySpace worth $15billion to News Corp) said recently, "As housing softens, fewer consumers are in the market for a mortgage, reducing valuable mortgage clicks." The implication is for online real estate ad spending in general.

Content and Inventory

Upon deeper review though, the bursting bubble isn't at fault here. Rather, Yahoo's real estate revenue risk is merely a function of declining search market share. Yahoo is losing real estate ad revenue to Google, which isn't even in the online real estate biz. (OK - Google Base is in the real estate business but that isn't monetized yet.)

Yahoo, as a portal, makes a decent chunk of its advertising dollars on its own content. Compare this to Google which only sells ads on other people's content. In terms of ad-space-inventory, Yahoo will continue to lose market share as long as its content is growing slower than the internet as a whole. This seems likely to continue.

Google sells ads when you search for, say, "Miami Florida Real Estate". The paid ads are around five bucks a click from one of the big real estate brokers. Many of the results lead to content sites, like Trulia and Zillow, both of whom make their own money reselling Google ads.

Yahoo, of course, has the exact same paid search opportunity. But that business only grows if more people are searching with Yahoo.

Meanwhile, despite the housing bubble burst, online real estate ad spending is exploding. Says local-web-advertising firm Borrell Associates

... Internet real estate advertising [jumps] to a $2 billion level this year and [will pass] $3 billion by 2010, surpassing newspapers in terms of advertising market share. [of $11 billion total real estate advertising spending]
... There is huge room for growth. Sixty-one percent of agents do not advertise on the Internet. And 87 percent of agents are not buying keywords on Google or Yahoo.

Borrell is actually projecting overall (online and offline) real estate marketing spending to decrease between now and 2010 as the bubble deflates, so the online percentage gain is even greater.

Beyond paid search ads, the Trulias, Homethinkings, BuyerHunts, Craigslists are providing new channels to reach home buying consumers. Agent websites, blogging, market research and other online tools add to the total spend. These channels, because of their efficiency gains, actually grow the real estate marketing pie, rather than simply transfer from offline to online spend.

In spite of declining real estate activity (maybe because of it), online real estate spending will continue to go through the roof.

In all cases, interestingly, Google increases revenue leverage, where Yahoo loses share. Yahoo may be a great company and may continue to throw off huge amounts of cash. But the company's current woes shouldn't be blamed on the housing bubble any more than say, bad weather.

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