JP Morgan's Online Ad Outlook Worsens; Display's Deterioration Accelerates
This story was written by David Kaplan.
Since JP Morgan internet analyst Imran Khan lowered his expectations for online ad spending two months ago, the outlook has only gotten more pessimistic. In Khan's latest revision downward, JP Morgan is now calling for total online global ad gains of 25 percent in F'08 and 13 percent in F'09. Khan previously estimated 28 percent and 19 percent year-over-year growth, respectively--all things considered, online is still looking comparatively healthy, at least for now. Here's JP Morgan's breakdown:
-- Display deteriorates: While the category has been limping along since last spring, JP Morgan finds that sell-through rates continue to decline. Also, CPMs for premium inventory are flat to slightly down. Looking forward, Khan says CPMs are likely to remain depressed and sell-through rates will worsen. And so, for JP Morgan's F'08 and F'09 U.S. display estimates, the analyst expects display dollars to hit $7.95 billion (11 percent Y/Y growth) and $8.45 billion (6 percent growth). That's down from JP Morgan's September call of $8.15 billion (14 percent Y/Y growth) and $9.43 billion (16 percent growth). For global display growth, JP Morgan sees F'08 bringing 14 percent Y/Y growth vs. its previous estimate of a 16 percent rise. More on search's strength and new research from the Rubicon Project after the jump.
-- Search holds upbut for how long?: Khan notes that search performance held up in Q3, and he expects "ad-budget cuts to bleed through." In the meantime, performance-based ads are holding up better than banner advertising. But keyword price inflation is moderating. And marketing spend pullback in some segments that has been hitting travel, telecom, autos and retail is worsening. As a result, JP Morgan now anticipates F'08 and F'09 search growth in the U.S. to rise 23.4 percent Y/Y and 17.3 percent, respectively, from 27.4 percent and 25.5 percent Y/Y growth. One the global level, F'08 global search ad growth will be up 34 percent, down slightly from JP Morgan's prior estimate of 36 percent Y/Y growth.
-- More evidence of lower CPMs: Separate research from ad optimizer The Rubicon Project tries to uncover some silver linings in the current dismal economic climate for online ads, but the company finds CPMs at ad networks slipped 11 percent from Q2 to Q3. The downward trend was driven by channels focused at social nets (about 5 percent), young adults (fell 8 percent), music (slumped 14 percent) and entertainment (down 17 percent). At the postive side, Rubicon says that tech-related CPMs shot up 35 percent, while TV/film sites saw CPMs rise 27 percent from Q2 to Q3. It's worth pointing out that there could be cyclical reasons for these quarter-to-quarter changes. The full report can be accessed here.
By David Kaplan