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Analyst: Content May Not Be King Online

Pivotal's Brian Wieser says "infrastructure, platforms and tools" are key, chooses Google as his top stock pick and puts an initial $81 billion valuation on Facebook.

NEW YORK - An analyst on Friday suggested that content may not be king on the Internet as he launched coverage of Internet advertising companies.

"On the Web, the argument content is king is difficult, if not impossible, to make in the long-run, in our opinion," wrote Pivotal Research Group analyst Brian Wieser in a report entitled "Internet Advertising: Content Passes The Crown," taking issue with an old industry mantra. "What is important are infrastructure, platforms and tools controlled by Google, Facebook and others."

Overall, he argued that "king content [has been] usurped" by those other important factors in the Web age.
 
His initiation report listed Google as his top stock pick with a "buy" rating and year-end price target of $806, meaning 33 percent upside, and also highlighted a "buy" rating on Yahoo. Ahead of Facebook's hotly-anticipated IPO, Wieser also placed an initial $81 billion valuation on the social network, led by CEO Mark Zuckerberg, with $5 billion upside or downside potential due to "uncertainty regarding Facebook’s level of ongoing capital expenditure."

Global online advertising is expected to generate $87 billion in revenue in 2012,a figure that will jump to $130 billion in 2016, the analyst highlighted. "This implies that online advertising will capture more revenues than newspapers in 2012, and by 2016 should generate more than newspapers and magazines combined," he pointed out.

Describing winning companies in that context, Wieser said "winners take most." He sees three characteristics of successful Web businesses: "best-in-class provision of ad buying infrastructure, such as repositories of data and related technologies, and tools which support efficient use of the Internet by marketers; best-in-class ad sales infrastructure; and the ability to be "the hub of users’ overall needs or the bulk of their needs from the Web."

Discussing Google, Wieser said: "While paid search remains a juggernaut, we like the company’s strategic dominance in ad-tech. Future growth of Internet-related advertising will ride on infrastructure, and Google owns much of it."

Meanwhile, at Yahoo, he sees "the bulk of value" in the company's Asian investments, whose future the firm is reviewing.

And Facebook has the tools to become a key ad platform, Wieser suggested. "Its user engagement is unparalleled, as is its domination of time on the Internet," he said. "Facebook is fundamentally different than the social networks which have come before it. From its earliest days Facebook sought to be a platform, and by establishing itself this way the company is better-positioned to grow both its advertising and payments businesses through a “stickier” relationship with consumers and the content they consume online."

Wieser estimated that Facebook will generate $12.6 billion in advertising and $5.5 billion in other revenue by 2017, compared with $3.2 billion and $557 million, respectively, in 2011.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai