Yahoo Gets Gloomy About Ad Revenue
Are the woes of old media infecting the new?
Shares of Yahoo Inc. fell 11% on Tuesday after the online giant said weaker ad sales would hurt its quarterly results.
“Yahoo finds itself not immune to the forces of gravity,” said Leland Westerfield of BMO Capital Markets. “The challenges buffeting traditional media apply equally to the online space.”
The Sunnyvale, Calif.-based company’s dive came after Chairman Terry Semel told investors at a conference in New York that third-quarter revenue would land in the lower end of the company’s forecast of $1.12 billion to $1.23 billion -- well below the $1.33 billion in the same period last year. The company blamed weakness in sales of ads to automakers and financial service companies.
The stock market’s reaction, though swift and brutal, was just half the 22% tumble Yahoo shares took July 19 after reporting disappointing second-quarter earnings and delaying the rollout of an ad system. The stock is down 34% year to date.
Though advertisers have continued to flock to the Internet, ad spending of all kinds was up just 4.1% in the first six months of 2006 from the same period last year -- and some big advertisers are trimming budgets. That hits all media companies -- new and old, online and off.
“We’re starting to see the Internet affected by factors that have nothing to do with the Internet,” Nielsen/NetRatings Inc. analyst Ken Cassar said.
It is unclear whether Yahoo is merely the first of the Internet companies to notice a deceleration in ad spending or whether it’s a Yahoo-specific problem.
On Tuesday, shares in Yahoo’s archrival Google slipped 2.6%. They are down 2.4% this year. Google Chief Executive Eric Schmidt has said the search engine company cannot continue to grow at its current pace.
If online ad spending is slowing, it is growing much faster than spending on other forms of advertising.
In the first six months of 2006, automotive Internet display ads brought in 20% to 30% more than a year earlier, according to TNS Media Intelligence, which tracks advertising spending. The same is true of online advertising for financial services, which was up 30% even as big spenders such as Citigroup cut ad budgets.
TNS does not track online advertising that’s tied to search results, which accounts for about half of Yahoo’s ad revenue.
“I would say this is company-specific to Yahoo,” said Timothy M. Boyd, an analyst with Caris & Co., who has a “hold” rating on the stock.
Yahoo’s shares have been battered because of delays launching an advertising network to better compete with Google’s paid search ads. The project, code-named Panama, has been in the works for two years.
Analysts note that although the downturn in ad spending affects all forms of media, they’re not equally afflicted.
BMO Capital Markets projects that ad spending will grow only 3% next year, with broadcast and publishing outlets seeing no growth or declines.
“As the ad expansion matures, what will be the major test is whether the much-vaunted targeting efficiencies of the Web will persuade media buyers to continue shifting to online, to the Internet, even when pricing of offline media becomes more affordable,” BMO analyst Westerfield said.
Merrill Lynch & Co.’s Lauren Rich Fine remains bullish on online advertising. Amid “sobering” declines in help-wanted advertising in newspapers and flat to slightly declining ad revenue for most television networks, she projects online ad spending of $11.6 billion this year, up 35% from last year, followed by 25% growth next year.
Yahoo shares fell $3.25 to $25.75 on Tuesday.
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dawn.chmielewski@ latimes.com
