Former Merrill .com bubble cheerleader Henry "Amazon at $400" Blodget writes thoughtfully about the impact of a recession on advertising dependent companies such as Google and Yahoo. See his blogicle for assumptions etc. Here's his take on Google:
Google. In our "GOOD" scenario, revenue growth merely slows--to 20% a year. (Google fans will argue that Google's growth won't slow at all because advertisers have perfect visibility into ROI, half of the business is international, etc. There are counter-arguments to each of these points, but you can make your own assumptions). Expense growth in this case also slows to 20%. Google is a supertanker whose expenses are currently growing more than 65% per year, so slowing expenses this much would be very "GOOD." In any case, in this scenario, Google's margins hold and operating profits grow 20%--nice, but short of what Wall Street is probably expecting.
In our "BAD" Google scenario, revenue flattens, and the company reigns in expense growth to 10% year (heroic). In this case, revenue stays the same, but the operating margin drops from 29% to 21% and operating profit drops by a third. (Imagine how Wall Street will react to that). We won't tell you about the UGLY case--you can see for yourself.