Several analysts are predicting that the mortgage crisis in the U.S. will ripple through to the online advertising market. One of the most popular types of online ads happens to be for mortgages. So the theory goes that if lenders have to cut their ad budgets, Google, Yahoo and other news sites and blogs will be pinched too.
In a research note on Friday, Sandeep Aggarwal of Oppenheimer & Co. spells it out: "Internet advertising is not immune to any potential cutbacks in ad budgets."
The firm trimmed its financial estimates for Google, Yahoo and Bankrate last week and this week trimmed its estimates for the overall U.S. Internet ad sector to reflect expected mortgage-related ad budget cutbacks. Oppenheimer lowered its forecasts by $178 million for 2007, $447 million for 2008 and $613 million for 2009.
The firm now predicts that online ad spending in the U.S. will grow 25.3 percent this year from last year, versus the previous forecast of 26.4 percent growth. For 2008, the projection is for 22.9 percent year-over-year growth, down from a previous forecast of 24 percent growth.
The good news, at least for Google, is that search marketing will be least affected, Aggarwal said.
There are other signs of trouble percolating. A recent report from TNS Media Intelligence found that U.S. online ad spending was down in the first half of the year, marking the first time it has fallen two consecutive quarters since 2001, according to Reuters.
And former Merrill Lynch analyst and blogger Henry Blodget has been giving dire deja vu warnings since August. He cites the TNS report, the fact that online ad network Burst Media said it would miss financial targets because of customers canceling advertising due to budget constraints and other events.
"The 2000 ad crash began exactly this way: anecdotal reports of weakness from minor players that were dismissed as 'isolated' and 'company specific'...followed by a shockingly rapid fall-off at the major players over the next two quarters," Blodget writes. "History rarely repeats itself exactly, but if we are indeed headed into an online ad recession (which we think we are), we expect that this is precisely how it will look."