First Analyst Online Ad Cut For Mortgage Crisis

Henry Blodget | September 14, 2007 1:36 PM

Oppenheimer_2 In a move that we think will be the first of many, a Wall Street analyst has trimmed his estimate for the growth of online advertising in 2007 and 2008.  Sandeep Aggarwal, a diligent analyst at Oppenheimer, is now looking for US online growth of 25% this year, vs a prior estimate of 26%.  The magnitude of the cut is obviously immaterial: Aggarwal is essentially arguing, as he did two weeks ago, that the mortgage collapse will have no impact on U.S. online ads.  We respectfully disagree with this conclusion, and we also view the direction of the revision--down--as notable.

In our experience, when major trends in estimate revisions change, they change for a long time.  More importantly, in our experience, the first cut is almost never the last.  If the mortgage crisis plays out the way we expect it might, Aggarwal's cut will be the first of many--at Oppenheimer and elsewhere--as the mortgage and housing impact spills over into the rest of the financial services industry and the broader economy. 

We agree with Aggarwal on three points:

  1. Online ads will be less affected than other media
  2. Paid search will be less affected than display ads
  3. International will be less affected than U.S.

We do not agree with the consensus, however--that Google and online advertising will essentially be untouched by a bit of a problem in a small, isolated corner of the economy.

See Also: Online Ad Recession Watch: Tracking the Signs

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sakkinow said:
and how many months before you call it a trend?

i've seen it all too many times, a one month blip does not make a trend.

yes, maybe there is some sofening, but the larger trend is still intact... offline dollars are moving to online as consumer media consumption continues to move online. and this trend is still the early stages.

as a professional trader i know that up trends always retrace a bit at some point. in fact, for an uotrend to be healthy it nees to retrace a bit. henry, have you forgotten this from your analyst days?
Henry Blodget said:
The point isn't the magnitude, which is obviously immaterial. It's the direction.

Perhaps the mortgage falloff is a blip that will be eclipsed by the torrent of share shift from every other industry (bull case). Perhaps it's the start of economy-wide weakness that will eventually hit all media including online (bear case). Until persuaded otherwise, I'm in the latter camp.
ashkan karbasfrooshan said:
I agree with Jon, this is a non-story in that if anything, it will only accelerate the shift of offline to online.

In other words, an advertiser, like Anheuser Busch, will reduce (maybe) TV a bit and spend *proportionally* and probably, in absolute dollars too, more on the Web.

Wrote about this here:
http://watchmojo.com/web/blog/?p=2032
Jon Kelly said:
Wow, this is almost becoming funny. First you ring the alarm bells over the 0.3% drop in overall ad spending (that excluded paid search) and now you view a 1 point cut in this forecast as "notable." What is the margin of error of these types of predictions? Was that even statistically meaningful?

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