Search, Search, Search

Not a novel or undiscovered market at this point, but search stocks are cheap relative to where they have been recently. And web usage only grows each day as people literally embed themselves in their cell phones.

While the value of social media ads is starting to be questioned more broadly (see the recent Facebook advertiser lawsuit) search ads are late funnel & drive high-intent user traffic. Further, many of the leading search engines also have dominant video destinations, whereas Facebook’s video push was based in large part on “fake news” styled metrics. Worse yet, Facebook got many other publishers to follow them into their video-first doom machine.

Facebook is so addicted to free content AND not sharing adequate revenue with publishers that even Instant Articles bombed. Facebook has already took a beating on the margin front by stating they were going to shift toward more friend posts & hire many moderators.

Will the market accept ANOTHER huge market hit by them investing huge into premium video before they have a strong end-user use case? And, if they pushed hard into video, how would they compete against the head start Netflix & Amazon have, the great IP Disney has, or the device ownership Apple has?

The other day Yandex was up 7% and today it is off 17%. Their market cap is around $9.5 billion and they own the Uber equivalent in the Russian market in addition to their strong domestic search share. They also have a Prime-like subscription service with music & other features & are shifting away from an eBay type ecommerce business to more of an Amazon styled ecommerce business.

Baidu was around $240 a share when the trade war narrative started to bite & their 52-week high was $275. It’s now at $192, so it is off about 30%. Their market cap is around $80 billion & they own a big chunk of an online video portal named iQiyi (IQ) which is like a mash up of YouTube & Neflix. Baidu owns almost 70% of it. Backing out that equity stake the rest of Baidu is valued at under $70 billion offset by what’s on their balance sheet.

Google dominates the web. The #2 search engine is…YouTube. I think most people are unaware of how under-monetized Google & YouTube are in emerging markets. If you use a VPN which allows you to shift your location to an emerging market and clear your cookies or use a new different web browser you will see that YouTube has maybe 1/3 to 1/4 the ad load in emerging markets as it has in the United States. The same deal exists with the general web search results. The interface is ad-heavy in the United States because both Bing & Yahoo! are extreme on this front. About the only general web search player in the United States that is fairly lite on their ad load & used by anybody is DuckDuckGo. Yandex also has a global version of their search engine, though it has a lot more spam on it than their localized version does because it has less end user data to refine the results & they don’t spend as much capital policing search results that are rarely used.

The counter view of search being toast is offered by George Gilder in his Life After Google.

I’ll read the book, but I suspect until there is a recession search ad revenues will keep growing ~ 20% a year.

Tim Berners-Lee is also working on a project hoping to upend the business models of Google & Facebook by giving web users more control over their data.

The centralization & decentralization of power has been a recurring fight throughout recorded history.

The first central currency was introduced by the British monarchy as a way to control the decentralizing tide of the merchant economy. The Teddy Roosevelt-led antitrust movement was aimed at reversing the centralizing tide of industrialization. Today, rising antitrust ambition in the E.U. and the U.S. is set on forcing much the same. Even Donald Trump’s trade war is a move to push global trade towards a decentralized system — away from distributed-supply-chain interdependence and towards nation-by-nation manufacturing independence.

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