Drastic drop in advertising revenue on the web sank internet stocks in 2008.
Web heavyweights Google and Yahoo in particular were wounded by slowdowns in retail sales and online advertising growth – issues that also dragged down the sector.
Online advertising did in fact see an improvement, but was comparatively not as speedy as 2007. In the absence of expected increase in advertising revenue, cash reserves came to the rescue of the cyber world and held them firmly against the credit crunch, believe industry experts.
While the advertising market took a hit overall in 2008, comparatively the online advertising market has held up. According to a November report from the Interactive Advertising Bureau, online advertising revenue totalled $17.3 billion (Dh63.54bn) in the first nine months of the year, compared with $15.2bn in the year-ago period.
While other mediums have been severely hit by the drop in advertising that included some to close down while others to file for bankruptcy, internet companies have stayed buoyant. No firms have gone bust, they are all still there — even Yahoo!
As the financial crisis worsened, banks and lenders reduced access to credit to making it harder for companies to fund operations. But internet companies like Google and Yahoo had built up large cash reserves over the years – Google had $11bn in cash and Yahoo $3bn in cash by the end of 2008.
While some analysts and investors may have preferred companies use the money to acquire other businesses or buy back stock, having that extra cash on hand created a great deal of comfort.
Still, as the financial crisis and recession took hold, internet stocks were unable to escape major declines. Overall, the Dow Jones US internet Index fell 45 per cent in 2008. The Dow Jones Total Market Index, meanwhile, dropped 40 per cent and the Standard & Poor's 500 Index lost 39 per cent.
Yahoo had a particularly turbulent year. The Sunnyvale, California-based internet pioneer faced a $33 per share takeover offer from Microsoft, which it rescinded in May after Yahoo Chief Executive Jerry Yang asked for $37 per share.
Yahoo then made plans for the sale of some of its ads by Google, but Google abandoned the partnership in November to avoid wading through antitrust objections from the Justice Department. Since then, Microsoft has said it is open to a deal involving Yahoo's search operations, but so far no agreement has been struck.
Meanwhile, Yahoo is looking for a new CEO after Yang said he will step down as soon as the board finds a successor. As his 18-month stint as CEO winds down, Yang is overseeing layoffs of about 1,500 employees as part of an effort to lower annual expenses by $400 million. During Yahoo's tumultuous year, its shares fell 49 per cent.
For Google's stock, the year started off strong with shares hovering above $690 – slightly below its all-time high of $747.24 reached in November 2007. But throughout 2008, the company's stock dropped 56 per cent, partly because of fears that its revenue growth would slow. (With input from agencies)