"The key for future advertising share growth will be solidifying the company's position in the rapidly growing paid search market," stated the report.
Merrill Lynch also forecast that Yahoo's net revenue will grow 28 percent to $4.74 billion this year; last year, the company's revenue reached $3.7 billion, marking a 42 percent growth rate.
A separate Merrill Lynch report issued Thursday about Google states that the company is "well-positioned" to gain online ad market share, but that it faces a number of challenges. In addition to paid search rivalries with Yahoo and MSN, Google also might see profits threatened if Internet access providers decide to implement a tiered network and charge Google a fee to send data to consumers at high speeds.
Overall, Merrill Lynch predicts that U.S. online ad revenues for all formats will climb to almost $23 billion in 2008, reflecting a compounded annual rate of 22 percent.
The Merrill Lynch reports came the same week that comScore released new data revealing that Google has been gaining market share in search, at Yahoo and MSN's expense. Last month, Google captured 42.3 percent of searches, up from 36.3 percent in February 2005. Yahoo, meanwhile, garnered 27.6 percent of searches--down from 31.1 percent last year. MSN also lost market share, capturing 13.5 percent of searches last month--down from 16.3 percent in 2005.
Separately, Nielsen//NetRatings reported Thursday that its figures show Google claimed 48.5 percent of all Internet searches last month, while Yahoo accounted for 22.5 percent and MSN garnered 10.7 percent.