This is a lead story in this morning's Wall St Journal:
THE ONLINE ADVERTISING picture has suddenly gotten murkier.
Yahoo Inc. yesterday warned that weakening Internet ad sales would hurt its third-quarter revenue -- a rare hitch in the online advertising success story of recent years and one that prompted questions about whether the company was alone in experiencing the turbulence or the online ad boom was more broadly endangered.
Yahoo Chief Executive Terry Semel told an investor conference that the Sunnyvale, Calif., company has seen growth weaken in ads from automotive and financial-services companies, but added that it's too early to tell if the slowdown will spill over into other areas.
Mr. Semel said ad spending by the auto and finance sectors was on the increase, but he added "they're not growing as quickly as we might have hoped at this point in time."
Yahoo's comments, which were accompanied by a company regulatory filing to the same effect, ignited a selloff in Yahoo shares, which already had been suffering this year. Yahoo fell $3.25, or 11%, to $25.75, in 4 p.m. composite trading on the Nasdaq Stock Market. It is now down over 40% from its 52-week high of $43.66 in January. Other Internet stocks were hit too: Google Inc. lost $10.88, or 2.6%, to $403.81 while eBay Inc. fell 89 cents, or 3.3%, to $25.95, both on Nasdaq. Google and other big Internet concerns declined to comment on Yahoo's statements.
Analysts and industry executives say new ad dollars could be bypassing the big portals such as Yahoo that for years garnered the biggest share of online ad revenue over smaller sites. Overall, these people suggested that a confluence of factors made Yahoo more vulnerable than other companies to the slowing growth it disclosed, and asserted that the broader landscape for online ad growth remained strong.
Many investors have been betting that a shift in ad spending from traditional media to the Internet would ensure continued swift growth in online ad revenue for years to come. But Yahoo is suggesting there could be bumps along the road, as factors such as softness in the auto and real-estate sectors could pull down their online ad spending.
Yahoo Chief Financial Officer Susan Decker said the slowdown, seen over the past two to four weeks, "is having an impact on our quarter," and will likely lead the company to "deliver in the bottom half of the range" of its third-quarter estimate. In July, Yahoo said it expected third-quarter revenue of $1.115 billion to $1.225 billion, excluding commissions paid to marketing partners.
The auto and financial-services sectors each account for roughly 12% of online ad spending, according to research firm eMarketer Inc., which means that any slowing growth there could damp overall Internet ad revenue numbers. Yahoo's total revenue last year was $5.3 billion and an unspecified, but significant percentage of that was from so- called branded advertising, which includes graphical display ads as opposed to the small text ads placed beside search results.
Analysts say the two sectors Yahoo singled out generally spend heavily on such display ads. John Aiken, head of equity research at research firm Majestic Research Corp. in New York, said data about Internet activity suggest that search advertising for Yahoo and the broader industry appeared to be growing around expected levels. "Branded [advertising] is going to be a bumpier road for growth than people expected," said Mr. Aiken.
Any weakness in online ad spending by automotive and financial- services companies wouldn't be surprising given the difficulties of some U.S. car companies and the cooling in home sales that could lower mortgage-financing activity. New York research firm TNS Media Intelligence estimates overall advertising by U.S. car makers dropped 13.3% to $3.79 billion in the first half of the year. TNS estimates that local newspapers, for example, saw a $600 million reduction in auto spending in the six months.
Still, TNS figures show that auto makers' spending on online display ads, banners, buttons and pop ups, was up 49% to $170 million in the first half from the year-earlier period. (TNS doesn't track online search ads or ones that use video or moving images.) Moreover, some ad executives suggest there isn't an online ad slowdown occurring in the auto sector.
One automotive industry ad executive said Yahoo's comments at least partly reflect increasing competition for ad dollars by sites such as YouTube Inc., media companies such as the TV networks staking larger presences online, and big Internet rivals who have become more aggressive such as Microsoft Corp. "We've just had more things in the market we can review," the executive said.
"The slice of the pie that is going to online is getting larger," said Ford Motor Co. spokeswoman Becky Sanch. "For 2007 online advertising is becoming a greater part of our media mix."
Ryndee S. Carney, a spokeswoman for General Motors Corp., says "overall online spending isn't decreasing," adding that "we are seeing more opportunities from the broadcast and cable networks who are bringing more broadband opportunities to us."
"There are lots of dollars moving online but there are increasingly more places to spending ad dollars," said Rishad Tobaccowala, chief executive of Denuo, the media buying unit of Publicis Groupe specializing in new media.
Brewer Anheuser-Busch Co., for example, recently announced it would double its online spending to 10% of its total ad spending next year. Much of its spending will be put toward a new online entrainment network dubbed Bud.TV. To fund the effort, the brewer said it will cut dollars from its national cable and network TV budget as well as the other Internet sites it places ads on.
And other ad industry executives said they didn't see a broad slowing in online ad spending. "I can't see anything that would suggest there is a softness in the market," says Tom Bedecarre, chief executive of AKQA, an online ad firm that works on behalf of major marketers such as Coca-Cola Co. and Nike Inc. Spending on online ads surged from $6 billion in 2002 to $12.5 billion last year and is on pace to set a record this year, according to the Interactive Advertising Bureau, an industry group.
Speaking at the same investor conference as the Yahoo executives, Walt Disney Co. CEO Robert Iger said he was unaware of any similar slowing of ad spending growth in any specific advertiser sectors.
The revenue warning by Yahoo follows the company's July announcement that it would delay the release of much-anticipated improvements to its search advertisement systems. "It's been a very tough year for Yahoo," said Marianne Wolk, an Internet equity analyst at Susquehanna Financial Group, which makes a market in Yahoo shares.
But analysts said the final weeks of this quarter as well as the fourth quarter, traditionally strong because of holiday-related advertising, would offer a better sense of the trend in online ad spending. "The fourth quarter will really be the bellwether for the advertising industry," said Tom Chavez, CEO of Rapt Inc., which helps Web publishers manage and price their ad inventory. "We'll have a much better indication of whether it's a blip or a bigger deal."
THE ONLINE ADVERTISING picture has suddenly gotten murkier.
Yahoo Inc. yesterday warned that weakening Internet ad sales would hurt its third-quarter revenue -- a rare hitch in the online advertising success story of recent years and one that prompted questions about whether the company was alone in experiencing the turbulence or the online ad boom was more broadly endangered.
Yahoo Chief Executive Terry Semel told an investor conference that the Sunnyvale, Calif., company has seen growth weaken in ads from automotive and financial-services companies, but added that it's too early to tell if the slowdown will spill over into other areas.
Mr. Semel said ad spending by the auto and finance sectors was on the increase, but he added "they're not growing as quickly as we might have hoped at this point in time."
Yahoo's comments, which were accompanied by a company regulatory filing to the same effect, ignited a selloff in Yahoo shares, which already had been suffering this year. Yahoo fell $3.25, or 11%, to $25.75, in 4 p.m. composite trading on the Nasdaq Stock Market. It is now down over 40% from its 52-week high of $43.66 in January. Other Internet stocks were hit too: Google Inc. lost $10.88, or 2.6%, to $403.81 while eBay Inc. fell 89 cents, or 3.3%, to $25.95, both on Nasdaq. Google and other big Internet concerns declined to comment on Yahoo's statements.
Analysts and industry executives say new ad dollars could be bypassing the big portals such as Yahoo that for years garnered the biggest share of online ad revenue over smaller sites. Overall, these people suggested that a confluence of factors made Yahoo more vulnerable than other companies to the slowing growth it disclosed, and asserted that the broader landscape for online ad growth remained strong.
Many investors have been betting that a shift in ad spending from traditional media to the Internet would ensure continued swift growth in online ad revenue for years to come. But Yahoo is suggesting there could be bumps along the road, as factors such as softness in the auto and real-estate sectors could pull down their online ad spending.
Yahoo Chief Financial Officer Susan Decker said the slowdown, seen over the past two to four weeks, "is having an impact on our quarter," and will likely lead the company to "deliver in the bottom half of the range" of its third-quarter estimate. In July, Yahoo said it expected third-quarter revenue of $1.115 billion to $1.225 billion, excluding commissions paid to marketing partners.
The auto and financial-services sectors each account for roughly 12% of online ad spending, according to research firm eMarketer Inc., which means that any slowing growth there could damp overall Internet ad revenue numbers. Yahoo's total revenue last year was $5.3 billion and an unspecified, but significant percentage of that was from so- called branded advertising, which includes graphical display ads as opposed to the small text ads placed beside search results.
Analysts say the two sectors Yahoo singled out generally spend heavily on such display ads. John Aiken, head of equity research at research firm Majestic Research Corp. in New York, said data about Internet activity suggest that search advertising for Yahoo and the broader industry appeared to be growing around expected levels. "Branded [advertising] is going to be a bumpier road for growth than people expected," said Mr. Aiken.
Any weakness in online ad spending by automotive and financial- services companies wouldn't be surprising given the difficulties of some U.S. car companies and the cooling in home sales that could lower mortgage-financing activity. New York research firm TNS Media Intelligence estimates overall advertising by U.S. car makers dropped 13.3% to $3.79 billion in the first half of the year. TNS estimates that local newspapers, for example, saw a $600 million reduction in auto spending in the six months.
Still, TNS figures show that auto makers' spending on online display ads, banners, buttons and pop ups, was up 49% to $170 million in the first half from the year-earlier period. (TNS doesn't track online search ads or ones that use video or moving images.) Moreover, some ad executives suggest there isn't an online ad slowdown occurring in the auto sector.
One automotive industry ad executive said Yahoo's comments at least partly reflect increasing competition for ad dollars by sites such as YouTube Inc., media companies such as the TV networks staking larger presences online, and big Internet rivals who have become more aggressive such as Microsoft Corp. "We've just had more things in the market we can review," the executive said.
"The slice of the pie that is going to online is getting larger," said Ford Motor Co. spokeswoman Becky Sanch. "For 2007 online advertising is becoming a greater part of our media mix."
Ryndee S. Carney, a spokeswoman for General Motors Corp., says "overall online spending isn't decreasing," adding that "we are seeing more opportunities from the broadcast and cable networks who are bringing more broadband opportunities to us."
"There are lots of dollars moving online but there are increasingly more places to spending ad dollars," said Rishad Tobaccowala, chief executive of Denuo, the media buying unit of Publicis Groupe specializing in new media.
Brewer Anheuser-Busch Co., for example, recently announced it would double its online spending to 10% of its total ad spending next year. Much of its spending will be put toward a new online entrainment network dubbed Bud.TV. To fund the effort, the brewer said it will cut dollars from its national cable and network TV budget as well as the other Internet sites it places ads on.
And other ad industry executives said they didn't see a broad slowing in online ad spending. "I can't see anything that would suggest there is a softness in the market," says Tom Bedecarre, chief executive of AKQA, an online ad firm that works on behalf of major marketers such as Coca-Cola Co. and Nike Inc. Spending on online ads surged from $6 billion in 2002 to $12.5 billion last year and is on pace to set a record this year, according to the Interactive Advertising Bureau, an industry group.
Speaking at the same investor conference as the Yahoo executives, Walt Disney Co. CEO Robert Iger said he was unaware of any similar slowing of ad spending growth in any specific advertiser sectors.
The revenue warning by Yahoo follows the company's July announcement that it would delay the release of much-anticipated improvements to its search advertisement systems. "It's been a very tough year for Yahoo," said Marianne Wolk, an Internet equity analyst at Susquehanna Financial Group, which makes a market in Yahoo shares.
But analysts said the final weeks of this quarter as well as the fourth quarter, traditionally strong because of holiday-related advertising, would offer a better sense of the trend in online ad spending. "The fourth quarter will really be the bellwether for the advertising industry," said Tom Chavez, CEO of Rapt Inc., which helps Web publishers manage and price their ad inventory. "We'll have a much better indication of whether it's a blip or a bigger deal."
