Cowen Lowers Online Ad Outlook, But Remains Bullish On Search And Google

This story was written by David Kaplan.
Weakness in display advertising caused online ad company ValueClick (NSDQ: VCLK) to warn investors last week that earnings in the second half of year would not be as high as expected. And now, with the poor Q2 earnings report from Yahoo (NSDQ: YHOO) this week, within the last several days has investment bank Cowen pulling back on its expectations for the online ad industry's growth. In an emailed report, Cowen says it is lowering its estimate for U.S. online ad market growth to 16 percent year-over-year from its previous projection of 19 percent.

-- Pessimists and optimists: Cowen's downward revision follows Magna's Bob Coen's more pessimistic turn in his for online ad spending forecast earlier this monthhe now sees 12 percent growth for online ad revenues this year, whereas back in December, he predicted a 16.5 percent rise over 2007. And in June, TNS said that display growth was already falling, with Q1 ad dollars for that segment way down from last year's double-digit growth rates. In May, Lehman Brothers analyst Doug Anmuth also lowered his expectations for internet ad spend, saying online growth in the U.S. will be up 23 percent, down from his previous call for a 24 percent increase. PricewaterhouseCoopers remains more sanguine, though they take a wider view of "digital media spending" that goes beyond online. Their outlook is also more global, as is another notable optimist, ZenithOptimedia, which expects global internet ad spend to grow 26.7 percent this year.

-- Search stays strong: But while display is buffeted by the economic slowdown, Cowen's forecast that the U.S. search market will grow 22 percent remains unchanged. In that area, Cowen is also still has confidence in Google (NSDQ: GOOG) accounting for 45 percent of the incremental growth in the U.S. online ad market this year, compared with 12 percent for Yahoo and 4 percent for Microsoft (NSDQ: MSFT). Cowen also maintains a strong belief that Google will be able to make money from YouTube, Google Apps, and non-search related ad serving. It's keeping a neutral rating on Yahoo, saying it expects the company to continue to lose share in search and that its display ad business is particularly sensitive to the worsening economy. 

By David Kaplan