The online-ad market grew an estimated 21% in 2011. And mobile, social and local -- as well as the shift in TV ad dollars as people get more content online -- could sustain similar growth in coming years, said Citi Investment Research's Mark Mahaney, in his remarks at Ad Age 's Digital Conference.
Mr. Mahaney, a leading internet analyst who covers about 30 stocks, was especially bullish about Google and Amazon (which he projects could "steal" the next retail recovery in its courtship of Walmart's customer base). He was precluded from talking about the elephant in the room, Facebook, as Citi is part of the research syndicate for the company's initial public offering. But he did note that low cost per thousand impressions offered by social networks with vast reach could have "massively deflationary" effects on premium-display advertisers such as AOL, Yahoo or even WebMD.
The analyst began his remarks by offering a few stock picks, leading with perennial favorite Google (which "stole" the last ad recovery, between 2003 and 2010, and could steal the current one) and following with "underrated" Priceline.com, a stock that he observed had gone up sevenfold in the past three years. His No. 3 pick was Amazon.com because of its ambitious positioning in spaces ranging from cloud computing to hardware (its big bet on Kindle) and retail.
"[Amazon] could be the Walmart and the eBay of the internet and the world 20 years down the road," Mr. Mahaney said.
In naming his top-10 internet trends, Mr. Mahaney unsurprisingly led with mobile, followed by the migration of eyeballs to social. He noted that mobile had accounted for 6% of Google's revenue in 2011 and is projected to increase to 10% this year.
"It's one of the reasons Google's growth rate probably clips along at 20% for longer than people realize," he said.
Concerns about the downward pressure mobile is exerting on costs per click (because mobile usage monetizes at a third of desktop) are most likely overstated because consumer behavior will change, Mr. Mahaney said. "Anyone under 25 probably uses their smartphone just like they do a laptop," he added.
Mr. Mahaney also discussed the potential of local online advertising but noted that it's exceptionally expensive to execute. Example: Groupon has about $2 billion in revenue with 10,000 employees; Facebook's revenue is roughly similar, but it has 2,000 employees. Google also had 2,000 employees when its revenue was $2 billion in 2004.
He also noted the growth of the markets for online gaming, cloud computing and mobile payments (projected to reach $23 billion, $36 billion and $60 billion, respectively, this year) as major trends to watch, as well as the rising tide of mergers and acquisitions by big online companies. (For example: Facebook's deal last week to buy Instagram for $1 billion.)
And in terms of the potential for new entries, Mr. Mahaney said that lower infrastructure costs -- as much as half that of 10 years ago, because of developments like cloud computing -- makes it easier for a Pinterest or an Instagram to come out of nowhere.
Asked what he would do if he were in charge of AOL or Yahoo, Mr. Mahaney deadpanned, "Make as many patent announcements as I can," adding that he was skeptical about a turnaround at either company.