Merrill's Blodget Cuts Industry Outlook for Q4 and 2001
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According to famed Merrill Lynch Internet analyst Henry Blodget, the online marketing industry's woes are going to get worse before they gets better.
Earlier this week, Blodget cut his growth outlook for the online advertising industry for 2001, predicting it will remain flat at $8 billion for the year.
That's the second major downward revision for the industry by Blodget, previously one of the industry's biggest supporters. Several months ago, he cut his estimate for the industry's 2001 growth to 15 percent, down from 30 to 40 percent.
In a research note, the analyst said the revision comes "as a result of continued cutbacks by dot-coms and a weaker overall advertising environment."
Blodget also said he expects first quarter 2001 will show a sequential decline of about 10 to 15 percent from fourth quarter, "which we think will be the trough."
"The environment continues to worsen versus our expectations, and we continue to think the seasonally weak Q1 will be the toughest quarter in terms of year-over-year growth," Blodget said in the letter. "We also continue to expect the market to strengthen in the second half of the year, when of the impact of the dot-com bubble has worked its way out of the system."
Blodget also said that he's cutting his estimates for the fourth quarter of 2000. He said he now believes the Internet ad market will decline about 5 percent sequentially. Furthermore, Blodget said that once the statistics are in for 2000, he thinks the industry will find that it grew only about 75 percent, to $7.9 billion -- five percent less than he previously predicted.
There is light at the end of the tunnel, however. Blodget predicted "modest sequential increases" beginning in second quarter of 2001. He also said he expects the industry will see 30 percent revenue growth in 2002, to about $10.4 billion.
Blodget's models were based principally on trend data from PricewaterhouseCoopers and the Internet Advertising Bureau's estimates of online ad spending from 1997 through Q3 2000, on Yahoo!'s split of dot-com and traditional advertising in Q2 and Q3 2000, and DoubleClick's estimate of its mix this year.
The news comes in advance of both Yahoo!'s and DoubleClick's earnings announcements later this week. Blodget said he expects Yahoo! will lower its 2001 estimates, and DoubleClick will announce continued CPM price decreases.
First Call/Thompson Financial surveys peg analyst consensus at a $0.02 per-share quarterly loss for DoubleClick, after DoubleClick previously lowered its Q4 guidance from an expected repeat of its third-quarter $0.03 per-share earnings. The Street also expects Yahoo! to post positive earnings of a $0.13 per share.
At press time, shares of DCLK were trading up 11.69 percent, at $10.69. Shares of YHOO were trading up 1.8 percent to $27.69.
Spokespeople from the IAB were not available at press time. In third quarter, when the industry was first starting to feel the effects of the dot-com slowdown, PWC and the IAB predicted a run-rate of $8 billion to $9 billion for the year. However, that prediction, too, had been trended down from second-quarter predictions of up to $10 billion in revenue.