• Red Herring, Thursday, November 15, 2007 11:16 AM

Financial analysts are readily throwing out the "R" word these days, but most believe that Internet advertising, a recession. However, Bernstein Research analyst Jeffrey Lindsay says that Web companies would feel "the brunt of any hardship" in display advertising.

That's bad news for Yahoo and AOL in particular, which are heavily dependent on display revenues. The Web giants already have a history of under-performing compared to average industry growth, which was 25 percent in the third quarter. During the same period, Yahoo delivered 16 percent growth, while AOL reported a comparatively dismal 10 percent. A downward trend "is already starting to emerge" at both AOL and Yahoo. That may be true, but third-quarter revenues didn't take into consideration the ad network acquisitions both companies made recently, which could help spur growth in the near future.

Google, MySpace and Facebook would be less affected by a recession. Respectively, the companies delivered 62 percent, 135 percent and 200 percent growth in the third quarter. In general, Web advertising, which is still much cheaper than traditional advertising, should benefit from the continued shift of spending to the Web. Indeed, that shift might even be accelerated by a recession.

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