Will Mortgage Collapse Hurt Web Ads? Looks That Way

Will the mortgage collapse blow a hole in bubble 2.0? We're becoming increasingly persuaded that it will. Why? Because financial advertisers account for more than a third of all web advertising, and as the plunging share prices of investment banks clearly demonstrate, the mortgage crisis is affecting a lot more than the mortgage sector.

We've been focused on the mortgage problem since Nielsen's list of top web advertisers in July showed that half of the top 10 were mortgage or credit-related marketers. The bullish argument, made by Motley Fool's Rick Aristotle Munarriz and others, is that "Our current situation is nothing like the dot-com bubble that left markets in a sudsy mess in 2001."

We agree with some of these arguments: Much of the last boom's advertising dollars came from doomed companies, so ad budgets vanished along with them. The Internet is not a fad, and other media are collapsing as users migrate online. And the Web draws upon a wide range of advertisers, so even a worst-case scenario for the mortgage business won't be a calamity.

But the mortgage collapse could still be the start of a big cyclical downturn. Bulls like Rick note that Bankrate (RATE) is doing fine, that TheStreet.com's (TSCM) ad sales were up last quarter, and that Google (GOOG) continues to chug along. But as the Bubble 1.0 collapse also showed, this logic is irrelevant: The Internet leaders did fabulously for five years through June of 2000. And then, suddenly, they didn't.

Two weeks ago, financial services advertisers made up the single largest sector on the web, accounting for 34% of all impressions, Nielsen reports. The mortgage industry is not an isolated corner of the financial services industry: it's a big link in a tightly interlinked chain. There is no guarantee that mortgage problems will trigger problems in the broader industry and economy, but it's a distinct possibility that they will. And online revenue doesn't have to collapse the way it did in 2000 for online companies to get hurt and Internet stocks to get crushed. It just has to experience a normal advertising recession.  The Motley Fool

Update: We've run the numbers.  Here's how bad the mortgage impact could be.