• by September 5, 2001

Merrill Lynch tech stock guru Henry Blodget yesterday upped his online advertising revenue projection for the rest of the year and lowered his forecast for 2002, and said that the lingering Internet ad slump will not inflict great harm on AOL Time Warner.

Based on an analysis of 20 companies’ online ad results for the second quarter, Blodget estimated that the overall market declined about 3% sequentially and 6% year-over-year, which was a little better than his previous projection.

The brokerage still foresees market growth picking up in 2002 and thereafter, but predicts a “more muted recovery,” given the condition of the economy. Growth will be about 10% to 15% for 2002 compared to a previous forecast of 20% to 25%, Blodget said, cutting his 2002 estimate from $8 billion to $7.3 billion.

Merrill Lynch also said that AOL Time Warner, which accounts for 45% of all Internet advertising, sparked the increased revenue estimate. But that does not mean AOL is invincible.

“With only 25% of total revenue coming from advertising, AOL Time Warner is sheltered from the storm, but it is by no means immune,” Blodget said. “With AOL trading at $37, we believe that much, but not all, of the dimmer outlook for 2002 is already in the stock.”

Ad revenue for the company will rise 6% this year to $9.3 billion and 17% in 2002 to $10.9 billion, he said.

Of all the companies Merrill Lynch tracks, only AOL, GoTo and Homestore showed year-over-year growth, Blodget said. The top eight companies tracked hold 85% of all online advertising.

- Newsbytes