The heating battle between Google (GOOG), Yahoo (YHOO), and Microsoft (MSFT), for search engine supremacy has created a lot of investor attention. While internet advertising is the flavor of the day, the Contrarian Investing Association thinks that traditional media outlets – like TV, radio, and newspapers may be under appreciated. The fact is that Google gets the vast majority of its revenue from advertising – the same revenue engine of TV, radio, and newspaper media outlets.
Will all advertising dollars go to the internet? No - people still like to listen to the radio, watch television, and read the newspaper. While the internet is an important medium for advertising, traditional media outlets will not be replaced anytime soon. For example, the radio did not make the newspaper obsolete. The television did not make the radio obsolete. The Internet certainly will not make all three traditional media outlets obsolete.
Is the stock market over-valuing Google and ignoring traditional media? The current market capitalization of Google (GOOG) is over $140 billon. To put this number in perspective, the market values Google more than TWICE the COMBINED value of the following nine media giants: Gannett (GCI), Tribune (TRB), Washington Post (WPO), EW Scripps (SSP), NY Times (NYT), Dow Jones (DJ), Belo Corp (BLC), McClatchy (MNI), and Lee Enterprises (LEE).
Is Google's brand dominance of Internet advertising sustainable? Currently, Google is the leading search engine. But for users, it is easy to switch to another search engine if better options are available. There are no shortages of search engine companies trying to get a piece of the Google's market share.
Another competitive advantage that Google has is its Adsense service and their large network of content Publishers. Categorizing every content page for every website at the performance speed that Google delivers is not an easy thing to do. But there are holes in their Adsense content program like non-disclosure of key information like click payout ratios, which results in inconsistent revenue performance for Publishers.
Google code is also very easy to implement but even easier for webmasters to remove from their sites resulting in low switching costs. If a real alternative steps in and offers higher pay-per-click, webmasters will most likely follow the money.
It is obvious that the trivial many (e.g. the herd which include Wall Street analysts, journalists, and lemming-like investors) are all on the Google bandwagon. What about the vital few doing? They are buying traditional media stocks! A good source of information is www.gurufocus.com, which tracks the holdings of 32 investment Gurus like Warren Buffett and David Dreman. Currently eight Gurus hold Tribune (TRB) and Gannett (GCI) compared to only one Guru that holds Google (GOOG).
Investors would be wise to take a look at the stocks of the forgotten media giants and avoid the maddening crowd who are buying Google at any price.
Disclosure: The Contrarian Investing Association currently advises its members to study Tribune and Gannett.