Jeremy Liew: online ad spending is slowing

Bill Morrison, the internet analyst for investment bank ThinkPanmure put out an interesting report today that is worth reading for people in the online media space. He concludes:

1Q08 was, in our opinion, one of the worst fundamental quarters for publicly-traded online media companies in several years. Roughly 66% of the companies we cover missed expectations or lowered their outlook. We believe online media is in the midst of a cyclical downturn, yet 75% of the companies we cover need to accelerate growth to meet the consensus estimates this year. That is highly unlikely given macro headwinds, in our view… Within advertising, we favor names with minimal CPM exposure such as GOOG, RATE, and MCHX.

This sounds gloomy, and is consistent with other recent announcements such as eMarketer lowering their forecasts for 2008 online ad spend and Pubmatic finding lower CPM rates in their latest survey.

It is important to note though that large companies and small companies face very different situations. As Pubmatic notes:

The PubMatic AdPrice Index revealed surprising weakness in monetization for the vast majority of Web sites. Large Web sites fared the worst while small Web sites managed to maintain their monetization rates. eCPMs for large Web sites (more than 100 million page views per month) dropped dramatically by 52 percent from 38 cents in March to 18 cents April. Medium Web sites (1 million to 100 million page views per month) were nearly flat, with monetization dropping from 34 cents in March to 33 cents in April. Small Web sites managed to improve their monetization, increasing from $1.18 in March to $1.29 in April.

EMarketer’s report still projects 23% growth in 2008 online ad spend, and ThinkPanmure notes that growth for the public internet companies is slowing, not stopping.

There is no doubt in my mind that a slowing economy is impacting advertising spend. However, the shift of advertising to follow time spent is continuing to drive growth in online media. The trend is our friend.

Furthermore, for startups, micro issues (such as whether the new sales person in Detroit started in Q2 or Q4) will continue to have far greater impact on making this years revenue goals than any macro factors will. Startups should not look at the woes of the publicly traded online media companies as their own fate.