Yahoo! seen as more attractive than Google!

Merrill Lynch said the first calendar quarter "will likely be a strong quarter for both Yahoo! and Google ." Merrill said, "While it appears that online advertising growth is moderating, we believe such a slowdown was inevitable given the high growth rate, but continue to believe that the growth is still substantial. We still expect online advertising spend to account for 7.4% of total advertising dollars by 2009 reaching $25 billion and growing 21% compounded annually." The research firm said that Time Warner unit AOL entering the local search field wasn't surprising and "should help Google in the near term." "Concerns over whether AOL's relationship with Google will be threatened with this launch is an overreaction as we believe recent developments have only indicated that Google and AOL are maintaining or expanding their relationship, rather than diminishing it," Merrill said. The firm said Yahoo! is more attractive than Google, citing Yahoo!'s strong branded advertising growth in the fourth quarter of 2004 "and the fact that its seasoned management team is executing on its fiscal 2005 strategy effectively is giving us some comfort." Yahoo! shares are trading at 17 times Merrill's 2006 estimate for adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), while Google shares are currently trading at 19 times the 2006 estimated adjusted EBITDA, "which seems rational given our expectation that EBITDA will grow 21% from 2005 to 2009." The firm reiterated a "buy" rating on Yahoo! but said that in "neutral"-rated Google's case "there still is not enough upside potential for us to warrant a 'buy' rating currently."