Analysts Change Tune on Web Ad Economics

CNET’s Stephen Shankland brought us an interesting article today on the projections of search advertising spend.

Many have speculated that the weakened economic state could be a boon to the Internet sector, as businesses look for more cost effective marketing, and consumers look for better prices on goods.

However some analysts disagree.

Cowen analysts Jim Friedland and Kevin Kopelman stated:

“We are lowering our estimates on Google, Yahoo, Amazon, VistaPrint, eHealth, Blue Nile, and Gmarket to reflect: (1) a weaker macro outlook exacerbated by the bank crisis; (2) the rapid rise in the dollar over the past two months; and (3) the impact of the (0.5 percent) rate cut on interest income. We continue to believe that paid search-ad budgets will remain intact, based on our previously published analysis on the historical experience of direct-mail budgets during recessions. However, we think the growth of paid-search budgets–and therefore Google’s revenues–will be lower than expected, as smaller overall ad budgets will limit the ability of advertisers to meaningfully increase search spend. We also believe that display advertising could experience negative growth (we are projecting mid-single-digit growth in 2009), which would weigh heavily on Yahoo.”

The forecast here is not dismal.

Analysts aren’t forecasting cuts in search advertising budgets, but they also aren’t forecasting increases in these budgets. This is a notable change in perspective that has meaning beyond Google and Yahoo stock prices.

As marketers we should take note that the current economic instability could have an effect on our market place and we should plan accordingly.