Citing “at least some mild softness in branded advertising,” the equity research team at influential Wall Street securities firm J.P. Morgan issued a report to investors this morning calling for “mixed earnings” results for the major Internet companies during the fourth quarter of 2011. While commerce based companies such as Amazon and Priceline are expected to turn in “solid” earnings results thanks to a stronger-than expected online holiday shopping season, the report indicates volatility among top online advertising players.
“WebMD’s recent pre-announcement suggests that pharmaceutical challenges likely weighed on overall [consumer packaged goods] spending,” the team wrote, noting that projections for the first quarter are likely to be “relatively cautious.”
That said, J.P. Morgan said it remains “positive on the Internet sector” for full-year 2012, “as we expect digital trends to be driven by strong secular growth, increased online accessibility through smartphones and tablets, and strengthening trends around social, local, and video.”
In fact, the Wall Street firm said it has grown less “cautious” about Google’s prospects since it released a tepid outlook on the search and display ad giant’s 2012 prospects, citing the contribution of smartphones and tablets to paid search results, and improving prospects for Google’s share of the online display ad marketplace.
“We believe Google to be a primary beneficiary of the growing online advertising market, with notable share gains in display,” the analysts wrote. “The display collaboration between Yahoo!, MSN, and AOL highlights Google taking significant share of the display business and the fundamental shift toward programmatic purchasing of display ads. We forecast display ad growth to outpace search, driven by online video, mobile, and social networks. We believe increasing adoption of connected devices (smart TVs, tablets, smartphones) will help drive increasing online video ad revenues, with Google’s YouTube being a primary beneficiary. Mobile display is also growing at a rapid pace.”
Prospects for online’s other display ad giant, Yahoo, are more questionable, according to the Merrill Lynch report.
Noting that it will take a while before new CEO Scott Thompson’s role becomes clear, Merrill Lynch predicted that, at least for the near term, it expects “continued softness” for Yahoo’s display advertising.
“We believe Yahoo! is still working to stabilize and rebuild its sales force following the reorganization in [the second quarter of 2011], which resulted in continued weakness in display through the past two quarters.
“Additionally, our checks continue to suggest Yahoo! is losing display share to Google and Facebook as display shifts to more programmatic and targeted buying.”