Andreessen's nuclear winter: Here it comes
The latest round of warnings comes as Internet advertising starts to suffer fallout from the financial meltdown on Wall Street--and it's just the start.
And so it starts.
Earlier Friday, analysts lowered estimates on Amazon.com and Yahoo, setting off renewed worries about the earnings outlook for Internet companies. The Nasdaq finished Friday in the red, even as the Dow Jones climbed back from an early morning sell-off with a triple-digit gain, ostensibly, on hopes that Congress would come up with a financial bailout plan.
What to make of all this? Up until lately, most of the people involved in Internet companies (and particularly, Web 2.0 types) shrugged off the gyrations in the financial markets as Wall Street's problem. The standard refrain was that the Internet economy "is a lot different."
Well, not really. Go back a few years and you'll find that was pretty much the same line of jive peddled by the folks pumping Internet stocks. That lesson got learned the hard way. Fact is that the economy is intertwined and the ripples--both for good and ill--touch every sector. So it was that more than a few of today's current class of born-again pumpers snorted derisively when Marc Andreessen last year quipped that Ning's decision to raise $60 million in private equity would prove handy during the coming nuclear winter. They're going to eat their words before long.
Talking about his August channel checks at Amazon, Lazard Capital analyst Colin Sebastian reports that online spending trends "remain challenging" and may have deteriorated since then. Citing a customer survey by Billme, an Internet payment services provider, Sebastian notes that almost half of the consumers polled said economic uncertainty had convinced them to delay purchases, with 42 percent saying they intend to cut back on credit cards. What's more, Sebastian expects competitive holiday promotions to hit even earlier than usual.
Was there any good news out there? Well, sort of. "We continue to believe that e-commerce growth should outpace brick-and-mortar retail as consumers seek better values online and are now more accustomed to shopping online for the holidays," he wrote.
Meanwhile, Collins Stewart analyst Sandeep Aggarwal's dismal note on Yahoo easily could apply to any number of advertising-dependent Internet companies:
We believe that the fundamentals at YHOO are deteriorating. On the one hand economic headwinds and turmoil in the financial markets are causing weaker display ad revenues. On the other hand changes with the minimum bid with search and a possible GOOG/YHOO deal are causing an outcry among many advertisers. To further complicate the situation is an ongoing loss of talent which might accelerate with the renewed restructuring efforts. We don't see any near-term upside in the shares of YHOO on fundamental basis. However, we would not rule out a possible MSFT/YHOO deal in the future.
The evidence is piling up every day. During the just-concluded Advertising Week conference in New York, Wenda Millard, the co-CEO of Martha Stewart Living Omnimedia, said during a panel that the financial crisis is going to reverberate through the economy with "pretty severe implications for medium-sized and smaller businesses and consumers."
The venture capitalists who've invested in sundry Internet start-ups (most with unpronounceable names) are spinning this as a passing event. Once Congress and the president agree on the $700 billion bailout (or rescue, if you prefer), we'll return to normalcy. Suuure.
I can't put it any better than did AllThingsD's Kara Swisher's recent post, where she wrote that "the economic crisis is likely to become a whirlpool that will be hard for any ad business to avoid, even the often recession-proof digital sector."
Translation: It's only a matter of time before the stuff hits the fan in a big, big way.