Analyst wary of Yahoo, DoubleClick ad sales

SG Cowen Securities analyst Scott Reamer on Friday lowered his revenue estimates for Web portal Yahoo and advertising network DoubleClick in the fiscal year 2001, largely because of a deflation in online ad spending.

Reamer joins a growing legion of Wall Street analysts who have raised warning flags for once-high-flying Internet stocks. Since the summer, analysts have said cutbacks in advertising spending would hurt Internet heavyweights and put pressure on justifying their high valuations.

Although the decrease in online ad spending has been evident for months, Reamer warns that it's not just dot-com start-ups that are holding back their checks. Traditional advertisers--the producers of goods and services--also have been largely hedging their Net bets. In addition, budget growth for Internet media companies has decreased, Web start-ups remain too cash-strapped to launch ad campaigns, banner ad costs are decreasing, and advertisers are demanding more bang for their online advertising dollars, the report said.

This could bode ill for Internet companies such as Yahoo and DoubleClick, which have said that spending from traditional advertisers will offset the cutbacks from floundering Web start-ups.

"We believe that the greater decrease in visibility for revenue at Yahoo over the next several quarters does not augur well for Yahoo's valuation in an already very difficult stock market environment," Reamer wrote. "Given these valuation dynamics, and the fundamental backdrop, we think it is prudent to suggest further caution in the shares."

Yahoo said in October that "pure play" Internet companies accounted for just more than 40 percent of its revenues in the third quarter. The company added that less than 10 percent of revenue comes from "financially questionable" companies. Its top 200 advertisers accounted for 60 percent of all ad revenue.

Despite Wall Street's growing pessimism about all things Internet, separate studies conclude that online advertising will continue to boom. Online ad sales have grown about 150 percent a year since 1996 to $4.6 billion in 1999, according to the Internet Advertising Bureau. Adjusted for inflation, Web ad sales have outpaced comparable growth for broadcast TV in its first five years and surpassed outdoor ad sales in total dollars spent in 1999.

In a recent report, Jupiter Media Metrix predicted that online ad sales will continue to grow, reaching $11.5 billion in 2003.