George Mannes
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Lehman's Becker Sees Online Ad Sales Dropping

George Mannes

08/10/01 - 01:25 PM EDT

As if the Internet advertising business hasn't been beaten up enough already, a Lehman Brothers analyst says things are worse than they look. As long as you're not AOL Time Warner (AOL Quote - Cramer on AOL - Stock Picks), that is.

Internet analyst Holly Becker, who last year was well ahead of the pack in predicting that Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks) would be crushed by plunging dot-com ad budgets, said Friday that trimmed forecasts for the 2001 online ad market were still too bullish.

Becker -- who started Yahoo! with a neutral rating last year at $148 but upgraded the stock to a buy in April when it was at $12.44 -- says the online ad business will drop 7% in 2001 to $5.44 billion. That's a lot more pessimistic than the consensus of a 22% rise that Lehman gathers from several independent industry researchers.

For companies other than the America Online unit of AOL Time Warner, things are going to be even worse, says Becker. AOL will likely enjoy 30% growth this year and a whopping 50% share of the online ad market, she says. But after subtracting AOL's numbers out of her industrywide figures, Becker says the rest of the online ad business will contract 28% from 2000. (Becker has a buy on AOL Time Warner, for which her firm has underwritten; Lehman hasn't been an underwriter for Yahoo!.)

Offline
Lehman's Internet advertising estimates
Source: Lehman Brothers

Becker bases her outlook on the usual suspects blamed for the weak online ad market: a weak economy, a soft ad market showing no signs of a recovery, evaporating ad spending from dot-coms, traditional marketers' distaste for online advertising and reduced revenue expectations from nearly all of the top ad-supported Internet properties.

Despite 2001's tough times, says Becker, things will get better for dot-com survivors in coming years. Becker is forecasting 20% growth in online advertising from 2001 to 2002, and 25% annual growth subsequently.

In Friday afternoon trading, Yahoo! was down 80 cents to $15.47. AOL Time Warner was off 61 cents to $44.25.