As investors await Yahoo Inc.'s earnings report, due after the close, many online-advertising watchers say a recovery remains many clicks away. Moreover, sales may never return to the lofty levels of 2000.
Fred Moran, who follows Yahoo, of Sunnyvale, Calif., and other Internet companies for brokerage Jefferies Co., doesn't expect online spending to significantly improve until the industry figures out more efficient ways to track advertising performance and quantify how online ads contribute to actual sales.
"In a tough economy where marketing budgets are shrinking and allocations of marketing dollars are being scrutinized, it seems unclear whether advertisers will come back to the online medium," he said. Any recovery in the Internet realm will likely lag behind the turnarounds of other ad-supported media, he added.
Online ads are the money-makers for most news and entertainment Web sites, and there were hopes for a recovery by the middle of the year. So far, however, there are few signs of a rebound: AOL Time Warner Inc. executives said in a conference call last week that they expect the ad market -- including online sales, which worsened for the AOL unit in the second half of 2001 -- will further deteriorate in the first half of the year. Late Tuesday, DoubleClick Inc. posted a fourth-quarter loss, and forecast a sequential drop in sales in the first quarter.
Now the market is looking to Yahoo. The company is expected to report fourth-quarter earnings on Wednesday of one cent a share, according to the consensus of analysts polled by FirstCall/Thomson Financial. Because so many ad-supported dot-coms have gone under over the last year, Yahoo, AOL and Microsoft Corp.'s MSN Network account for a disproportionate share of the $6 billion to $8 billion spending in online advertising, and Yahoo is considered an indicator of the overall state of the market.
Jeffries's Moran is forecasting fourth-quarter revenue for Yahoo of $174 million, with advertising accounting for $137 million of all sales, and he doesn't expect major improvements the rest of the year. "AOL is admitting that online advertising remains under pressure, and I'm not sure that Yahoo could say much differently," Moran said.
Other analysts are more optimistic. Merrill Lynch analyst Justin Baldouf said in a recent research note that he is expecting fourth-quarter revenue from Yahoo of $175 million, down 44 percent from the year before but up 5 percent from the third quarter. Yahoo will benefit from a small improvement in the overall online advertising market, he said. "We are seeing signs that the online spot ad market is bottoming," he said in the note, which didn't set a date for any turnaround.
Still others expect gains by the end of the year, arguing that the Internet is too popular to be ignored by advertisers. "There is still a big gap between the amount of time consumers spend online relative to other media and the percentage of dollars spent online [advertising] relative to other media," said John Corcoran, an Internet analyst with CIBC World Markets, who believes online spending will start to grow again in the fourth quarter. "Over time, that gap will narrow."
The industry is starting to tackle some of the doubts about the effectiveness of online ads. Publishers launched new, flashier ad sizes last year, and earlier this week, the Internet Advertising Bureau, a New York-based industry group, released new standards that aim to provide more-accurate ways for sites to count visitors.
In the meantime, some point to the few bright spots, including a spate of online ads over the past few months promoting 0 percent financing deals from car makers like General Motors and banks.
"In terms of what we're hearing, there are a couple signs of health," said Marissa Gluck, an online advertising analyst with Jupiter Media Metrix in New York. "The Internet is a very resilient medium."
unknown, Mediaweek.com. January 17, 2002
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